Settlement Agreement

A Settlement Agreement (formerly known as a Compromise Agreement) is a specific type of contract between an employer and employee under which the employee receives a financial payment in exchange for agreeing that he or she will not pursue any legal claims against the employer.

Settlement agreements are commonly used as a means of resolving disputes between an employer and employee and as a means of mutually terminating the employment relationship. The payment made to the employee may consist of salary, contractual notice pay and a compensation payment for the termination of employment. A compensation payment may be tax free if it is less than £30,000.

Q: Can I be dismissed even though I haven’t had any previous disciplinary warnings?

A: If you have worked for your employer for at least two years, you may be able to claim unfair dismissal if your employer does not have reasonable grounds to dismiss you or fails to follow a fair disciplinary procedure. Normally, you will be given a number of disciplinary warnings and have the chance to improve your performance or conduct.

You could be dismissed straight away in cases of ‘gross misconduct’ such as theft or fighting. Even then, the employer should hold a proper disciplinary hearing and give you a chance to tell your side of the story first.

If you have worked for your employer for less than two years, you cannot normally claim unfair dismissal but there are exceptions. For example, you can claim unfair dismissal if you were dismissed for trade union activities or whistleblowing. You can also take action if the dismissal was discriminatory: for example, because of your race, age, disability or gender.