Settlement agreements explained 

What it is

Acas describes a settlement agreement as a document that sets out the terms and conditions for settling an employment dispute. It is in writing, legally binding, voluntary, and reached through discussion and negotiation. It may include a financial payment, an agreed reference, an agreement not to make a tribunal claim and a confidentiality clause.

The conditions that make it binding

Section 203 of the Employment Rights Act 1996 sets out the conditions regulating settlement agreements. In summary:

• The agreement must be in writing
• It must relate to the particular proceedings or complaint
• The employee or worker must have received advice from a relevant independent adviser on the terms and effect of the proposed agreement and, in particular, its effect on their ability to pursue their rights before an employment tribunal
• There must be insurance (or a professional indemnity) in force covering the risk of a claim by the employee in respect of loss arising from that advice
• The agreement must identify the adviser
• The agreement must state that these conditions are satisfied

Who counts as a relevant independent adviser

The Act says a relevant independent adviser is a qualified lawyer; an officer, official, employee or member of an independent trade union who has been certified in writing by the union as competent and authorised to give advice; or a person who works at an advice centre (as an employee or volunteer) and has been certified in writing by the centre as competent and authorised. The adviser cannot be someone who is, or is employed by or acting in the matter for, the employer or an associated employer.

Courtwise is an independent paralegal practice. It is not a firm of solicitors, so it cannot act as the relevant independent adviser and cannot make an agreement binding. What it can do, before you take advice, is help you understand the offer, set out your position and questions, and prepare a schedule of what you stand to lose or gain so that your adviser has the full picture.

A warning about wording

Acas warns that a clause such as "in full and final settlement of all claims" would make the agreement invalid, because the agreement must state the specific legal claims it covers.

Agreements reached through Acas

A different route is a conciliation agreement (a COT3) reached through Acas early conciliation or while a claim is under way. Acas says a settlement reached in early conciliation is legally binding and that you cannot then take that case to a tribunal.

Tax

GOV.UK notes that a termination payment can include holiday pay, unpaid wages and company benefits, and that what you pay tax and National Insurance on depends on what is included. Ask your adviser how the payments in your agreement will be treated.