A settlement agreement is a legally binding agreement between two parties, which was previously known as a compromise agreement. It is normally between an employer and an employee or two parties that were in that relationship before employment terminated.

The employee agrees not to bring any claims against their employer in return for a lump sum of money. As the employee waives their employment rights when they sign such an agreement, in order to be valid, the agreement must be in writing, have certain legal wording and be signed by a qualified adviser who confirms that they have advised the employee of their rights to pursue a claim. A qualified adviser would be a solicitor or a trade union representative.

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