Settlement agreement to settle employment claims

by Roderick Ramage, solicitor,

first published in New Law Journal ( on 17 September 1993 and subsequently in the Service Agreements chapter of Kelly's Draftsman 16th & 17th editions


This precedent and the notes to it are not advice to any person and may not be taken as a definitive statement of the law in general or in any particular case. The author does not accept any responsibility for anything that any person does or does not do as a result of reading them.

This precedent and the notes to it were written shortly after the possibility of this type of agreement was first made available, by the Trade Union Reform and Employment Rights Act 1993. That act, the Employment Protection (Consolidation) Act 1978 and other employment legislation were consolidated in the Employment Rights Act 1996. This precedent and the notes to it have been altered to reflect the consolidation. Latest revision 15 August 2015.

[employer's letterhead]


Dear [name],

I confirm the terms which we have agreed to settle your claims against the Company as follows.

1 The Company will pay [.....] ([.....] pounds) to you immediately on your signature and return to it of the enclosed copy of this letter.

2 You agree to refrain from instituting or continuing before an Industrial Tribunal your complaint against the Company in respect of you allegation that the Company has dismissed you unfairly [or] discriminated against you on the grounds of sex [or] race [or] has made an unlawful deduction from your wages [or as the case may be]. The complaint to which this agreement relates arose out of the following facts [or] is the complaint in your application to an industrial tribunal in case [number].

[Sufficient facts to identify particular complaint]

3 You also accept the payment made by the Company to you in full and final settlement of all other claims of any kind which you are or might be entitled to make against the Company in respect of you employment or its termination except other claims in respect of which an industrial tribunal has jurisdiction [and claims (if any) for industrial injury of illness].

4 It is a condition of the proposed contract between us to be effected by this letter and your acknowledgement of it that you take independent advice on the terms and effect of the contract and in particular their effect on your ability to pursue a complaint before an industrial tribunal.

5 We state that the conditions regulating this contract in the Employment Rights Act 1996 * are satisfied. Please signify your acceptance of the above by signing and returning the acknowledgement on the enclosed copy of this letter.

[* The Employment Protection (Consolidation) Act 1978 when this article was first published]

[This agreement is a deed and your signature must be witnessed.]

Yours etc


[witness [if a deed]]

I [name] of [address] state that I



[witness [if a deed]]


The Trade Union Reform and Employment Rights Act 1993 went a long way towards easing the problems, which both employers and employees face, who wish to make binding agreements following ACAS's policy since June 1990 not to effect settlements on form COT3, where terms have been agreed between the parties, and amended the then existing legislation to enable the parties to make binding agreements, which must be in writing and were variously called compromise agreements or compromise contracts, on a particular complaint in any matter over which industrial tribunals have jurisdiction. This is now in the Employment Rights Act 1996, s 203(2)(f) and by the Enterprise and Regulatory Reform Act 2013 s23(1)(b) the agreements are now called settlement agreements.

There is no statutory requirement for any payment or other consideration. If there is no consideration, the agreement should be signed as a deed.

The settlement agreement must relate to a particular complaint. According to the debate in the Lords (Pepper v Hart [1993] IRLR 33), s 140(3)(b) means that the parties will not be able to dispose of other actual or potential statutory complaints by general terms in one settlement agreement, as is normally done in general terms on form COT3 settlements. Indeed it has been suggested (Gazette 90/30, 25 August 1993, 26) that perhaps the agreement can deal with only one particular complaint, so it may by prudent to make separate agreements if the parties have agreed to settle two or more particular complaints. In the absence other guidance (one hopes for a robust and practical decision, such as in Delaney v Staples ([1993] IRLR 19) HoL rather than a legalistic re Sinclair ([1985] 3 All ER 1066)) the editor's tentative opinion is that one document may contain more than one agreement including separate agreements for each complaint.

Paragraph 3 is not a part of the settlement agreement, but it is prudent to settle any actual or potential contract claims at the same time. The statutory requirement that the agreement must relate to the particular complaint, whilst it may limit it to only one statutory complaint, does not appear to prevent the parties from dealing at the same time with other complaints in general terms, but the agreement in general terms will not deal with other matters over which an employment tribunal has jurisdiction. Practitioners must in this context be aware of the enlarged jurisdiction of industrial tribunals to deal with breach of contract claims up to a limit of 25,000. For a termination agreement see Kelly's Legal Precedents (formerly Draftsman) 21st edition, chapter 10 Employment, precedent 22 [10-505]. Precedent 22 [10-542] is a long and comprehensive settlement agreement.

Paragraph 4 follows the wording of s203(3)(c), but is probably not strictly necessary. The agreement must however identify the adviser, and the adviser must have insurance cover or indemnify from a professional body for loss arising from the advice: s203(d).

The statement in paragraph 5 is required in the agreement: s203(3)(f)

Roderick Ramage

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