A settlement agreement is a legally binding contract between an employee and employer, typically signed when employment ends or during a dispute resolution process. By signing the agreement, the employee agrees to waive specific claims they could have brought against the employer in exchange for a financial settlement or other benefits. Understanding which claims can—and cannot—be waived is essential before signing, as it impacts your rights and future legal options.

Here’s a comprehensive look at what types of claims can be waived under a settlement agreement, what usually cannot be waived, and what this means for you as the employee.

1. Employment-Related Claims That Can Be Waived

Settlement agreements often aim to cover a wide range of employment-related claims, and most standard claims can be waived as part of the agreement. These include:

a) Unfair Dismissal

• Description: Unfair dismissal claims arise when an employee believes they were dismissed without a fair reason or without following proper procedure.
• Waivability: This is one of the most common claims to be waived in settlement agreements, as employers seek to protect themselves from potential tribunal actions. By waiving this right, you agree not to pursue an unfair dismissal claim in exchange for compensation or other terms outlined in the settlement.

b) Constructive Dismissal

• Description: Constructive dismissal occurs when an employee feels forced to resign due to intolerable working conditions or a fundamental breach of contract by the employer.
• Waivability: Constructive dismissal claims can also be waived under a settlement agreement, which may be particularly useful for employees who have resigned but want a financial settlement instead of taking the claim to tribunal.

c) Redundancy-Related Claims

• Description: Employees may bring claims for unfair redundancy if they believe the redundancy process was mishandled or unfair.
• Waivability: In most cases, settlement agreements include a waiver of claims relating to redundancy, including claims for unfair redundancy or for enhanced redundancy payments.

d) Discrimination Claims

• Description: Discrimination claims arise when an employee feels they were treated unfairly due to a protected characteristic, such as age, sex, race, disability, religion, or sexual orientation.
• Waivability: Discrimination claims can be waived in settlement agreements, but this often requires the employer to offer a more substantial financial package to ensure the employee is fairly compensated. Discrimination claims can be high-value claims, so careful consideration is essential.

e) Breach of Contract

• Description: Breach of contract claims may arise if the employer fails to fulfill contractual obligations, such as providing adequate notice pay, bonuses, or benefits.
• Waivability: Settlement agreements typically include a waiver of breach of contract claims. This means that once signed, you cannot pursue a claim for any contractual obligations not met by the employer, provided the terms are covered in the settlement.

f) Holiday Pay and Unpaid Wages

• Description: Claims for unpaid wages or untaken holiday days are common when employment ends. Settlement agreements often aim to resolve these issues by including a final payment.
• Waivability: These claims are generally included in the settlement agreement, with the employee waiving further rights to claim for unpaid wages or holiday pay once the agreement is signed.

g) Claims for Bonuses, Commissions, and Other Incentives

• Description: If bonuses or commissions were promised but not paid, they may become a point of dispute.
• Waivability: These claims are frequently included in settlement agreements, as they relate to past entitlements. The agreement usually ensures that any due amounts are covered in the final payment.

2. Claims That Usually Cannot Be Waived

While settlement agreements cover a broad range of employment-related claims, certain claims cannot legally be waived. These include:

a) Personal Injury Claims (Unrelated to Employment)

• Description: A settlement agreement cannot waive personal injury claims that have not yet arisen or that the employee is unaware of.
• Example: If an injury related to your employment emerges later (e.g., a repetitive strain injury that appears years after leaving), you could still pursue a claim for that injury, as it was not known at the time of signing the agreement.

b) Future Claims

• Description: Claims based on incidents or breaches that occur after the settlement agreement is signed cannot be waived.
• Example: If the employer fails to honor a part of the agreement, such as the payment timeline, you can still pursue a claim for that breach.

c) Accrued Pension Rights

• Description: Your rights to any accrued pension benefits cannot be waived in a settlement agreement. These rights remain intact even after signing.
• Example: If you are part of a workplace pension scheme, any benefits you accumulated up to the point of leaving employment are legally protected.

d) Claims Relating to Statutory Rights That Cannot Be Waived

• Description: Certain statutory rights, such as the right to minimum wage or protection under whistleblowing laws, are protected under UK law and cannot be waived.
• Example: If you were not paid the minimum wage during employment, you retain the right to bring a claim for that specific breach, regardless of any waivers in the settlement agreement.

3. Importance of Independent Legal Advice

A crucial aspect of signing a settlement agreement is that you are required to receive independent legal advice before it becomes binding. The role of your solicitor is to:

• Explain Terms and Waivers: Your solicitor will help you understand what rights and claims you are giving up.
• Assess Fairness of the Agreement: They will assess whether the settlement amount is fair, given the potential value of claims you are waiving.
• Negotiate Adjustments if Needed: If certain claims, such as discrimination or unpaid wages, may warrant higher compensation, your solicitor can negotiate with the employer.

4. What to Consider When Waiving Claims

Before waiving any claims, carefully consider the following factors:

a) Strength of Potential Claims

• Assess the likelihood of success for any potential claim you may have, particularly for discrimination, unfair dismissal, or constructive dismissal. If the claim is strong, you may have more bargaining power to negotiate a higher settlement.

b) Compensation Amount

• Ensure that the financial offer compensates adequately for the claims being waived. For higher-value claims like discrimination, the settlement should reflect the potential award you might receive in an employment tribunal.

c) Non-Financial Terms

• Evaluate non-financial terms in the agreement, such as an agreed reference, confidentiality clauses, or outplacement services, which may provide additional value beyond the financial settlement.

d) Future Employment Prospects

• If restrictive covenants are included in the agreement, such as non-compete clauses, they may limit your future employment options. Consider whether these restrictions impact your decision to waive claims.

5. Negotiating the Waiver of Claims

Waiving claims doesn’t have to be an all-or-nothing decision. Here are some strategies to consider when negotiating the waiver of claims:

a) Prioritize Key Claims for Negotiation

• If you believe you have strong discrimination or unfair dismissal claims, highlight these as points of negotiation. Employers may be willing to increase the financial package to avoid these potential claims.

b) Negotiate Partial Waivers

• In some cases, you may negotiate partial waivers. For instance, you might agree to waive all claims except those related to discrimination or harassment.

c) Request Enhanced Non-Financial Benefits

• If you are willing to waive high-value claims, negotiate additional non-financial benefits, such as an agreed reference, non-disparagement clauses, or outplacement support.

6. Final Thoughts: Protecting Your Interests

A settlement agreement is a powerful tool for both employees and employers to achieve a clear, amicable conclusion to an employment relationship. However, it’s essential to understand what claims you’re waiving and ensure you’re receiving adequate compensation for doing so. While most employment-related claims can be waived, some statutory rights and claims, particularly those involving future incidents, remain protected.

Engaging a solicitor to guide you through the process is invaluable in ensuring that you understand your rights, assess the fairness of the offer, and maximise the agreement’s benefits. By carefully reviewing the terms and weighing the value of the claims you’re waiving, you can move forward confidently, knowing you’ve made an informed decision that serves your best interests.