A settlement agreement is a formal contract between you and your employer to resolve your workplace problem. Settlement agreements are written down and signed by both of you. You don’t need a court or Tribunal to reach a settlement.

To reach agreement, both sides negotiate what they are willing to do to reach a resolution. This often means one side drafts the contract (usually your employer) and then you send versions back and forth between you until you are both happy with it.

Usually, a settlement agreement means that you are paid a sum of money in return for either:

• not starting an Employment Tribunal claim, or 
• withdrawing a Tribunal claim that you’ve already started.

A settlement agreement typically includes a combination of things like:   

• a compensation payment (the amount they agree to pay for you to drop the case)
• payment for your notice period
• payment for any holidays
• your employer's contribution to your legal fees (see below)
• an agreed reference that the employer will give for you
• agreements about confidentiality.

Read more about how to negotiate the terms of a settlement agreement.

There are a number of scenarios in which you might be thinking about settling. 

Usually, the best situations to settle with your employer are ones where you have some kind of leverage that you can use to make them want to agree to a deal.

Perhaps you’ve:

• lost your job and think you have a potential Employment Tribunal claim
• been mistreated at work and think you might have a Tribunal claim
• made a Tribunal claim and you want to settle through ACAS Early Conciliation
• been asked to sign a settlement agreement by your employer as part of a redundancy exercise.

It goes without saying that an Employment Tribunal claim is bad news for any employer, for several reasons, not least the potential cost of defending one. 

This gives you a lot of leverage to reach an early deal with your employer. So if you’re in any of these situations, consider whether you should commence “without prejudice” discussions with your employer to start a settlement negotiation.

You can settle at any point with your employer - at the informal complaint stage, formal grievance stage, filing a claim stage or even during the Tribunal process itself. It’s worth considering what timing is potentially best for you. 

On the one hand, you may be better off settling sooner rather than later, as this saves you the time and hassle of pursuing things further. On the other hand, if you want to agree to a good deal, it may be best to hold off until further down the line where your employer may be able to see that you have a good case against them and is feeling more pressure. It’s not actually uncommon for cases to be settled at the door of the Tribunal hearing itself.

If you’re trying to settle at the same time as pursuing a Tribunal claim or potential Tribunal claim, then bear in mind that there are strict legal limits on the dates by when you need to do this. Read more about deadlines and timescales around Employment Tribunals.