From July, Compromise Agreements were replaced by Settlement Agreements, as a legitimate method to end an employment relationship. They waive an individual’s right to make a subsequent claim to an employment tribunal or court.

However, it is important to note that there are both advantages and disadvantages to using Settlement Agreements and they should be used with care.


  • Can provide a quick and dignified end to an employment relationship that is not working
  • Can avoid time, cost and stress associated with employment tribunal claims (for both sides)
  • Can provide compensation and often a reference for an employee


  • Can be expensive for an employer to pay an agreed financial sum to the employee
  • Can jeopardise the ongoing employment relationship if a settlement is not agreed
  • Can have an adverse effect on employment relations in the wider workforce if used inappropriately or as a substitute for good management practice


The ACAS Guide on Settlement Agreements and its new Code of Practice provide useful information, but I would always recommend seeking legal advice before making a settlement offer, because individual circumstances and specific business requirements vary greatly.


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