Settlements and settlement agreements

Employment legislation prevents employers from seeking to contract out of, or waive, statutory employment rights, duties and responsibilities. This is because employers and employees are usually in unequal bargaining positions. It follows that legislation designed to give employees rights would be ineffective if employers could persuade or pressurise employees to agree that such provisions should not apply.

However, where an employment dispute arises between an employer and an employee, it will often be in the interests of both parties for such a dispute to be resolved by agreement, given the uncertainties of legal proceedings, as they can be protracted and expensive. It is also important that the parties can rely upon any such agreement having binding effect.

Key points

• In situations where a dispute has arisen between employer and employee, resolving it by agreement is often in the best interests of the parties. 
• Settlement (previously “compromise agreements”) agreements can be used to settle an employment law dispute in a legally binding way. 

• Only the following agreements are binding as settlement: 
  • conciliation agreement arrived at through the involvement of Acas

  • settlement agreement

  • decision of an Acas-appointed arbitrator under the Acas arbitration scheme

  • consent order made by the employment tribunal or an order dismissing the proceedings by consent. 

• Since 6 May 2014, prospective tribunal claimants are required to contact Acas with a view to pre-claim conciliation before they can lodge a claim with the employment tribunal.

• Where an agreement is made with the help of a conciliation officer the employee will be barred from  pursuing the complaint through an employment tribunal. 

• The Acas arbitration scheme is a voluntary alternative to employment tribunals for the resolution of employment disputes such as unfair dismissals or discrimination.  

• A valid settlement agreement is enforceable through civil proceedings. 

• A settlement agreement to terminate employment can be offered by an employer irrespective of whether any dispute has arisen. Evidence of the settlement offer and the discussions leading to it are inadmissible in any subsequent claim for unfair dismissal (unless something improper was said or done during the discussions).

• Consent orders are binding agreements made by employment tribunals that validate private agreements for the settlement of a dispute reached by the parties themselves. 

• The Employment Rights Act 1996 s.203 sets out the main principles of settlement of disputes regarding statutory employment rights, whether through a conciliated agreement or a settlement agreement.