A settlement agreement is a legally binding contract between an employer and employee, typically used to resolve workplace disputes or end the employment relationship, settling certain legal claims without going to tribunal.

They are commonly offered by employers when terminating someone’s employment, or resolving a dispute.

Once signed, both parties must honour the agreement’s terms. Usually, the employer provides financial compensation in exchange for the employee’s commitment not to pursue legal claims against their employer. Agreements may also include other provisions such as confidentiality clauses or post-employment restrictions.

By law, employees must receive independent legal advice before signing a settlement agreement. Without this, the agreement may not be binding, and employees could still bring tribunal claims. Employers typically cover the cost of this legal advice.