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Settlement and separation agreements

Last updated August 2021

This chapter explains how to use settlement agreements and what provisions you should include when negotiating a settlement agreement.

Why you might make a settlement agreement

You might consider making a settlement agreement if you think it can prevent or resolve a dispute that might lead to legal liability.

Definition: Settlement Agreement

A settlement agreement is an agreement in which all parties agree to settle all claims and matters between them. It is designed to settle a legal dispute before it goes to court. A settlement agreement may also be termed terms of settlement, a release agreement or a settlement and release agreement.

Settlement agreements allow you to confidentially resolve disputes with your employees without admitting fault. If an employee consents to a settlement agreement, they are giving up their rights to make any future legal claim in respect of the dispute, e.g. unfair dismissal.

Important: A common type of settlement agreement, a separation agreement, provides the agreed terms on which an employee ceases their employment.
Definition: Separation Agreement

A separation agreement is a type of settlement agreement under which the employer and the employee mutually agree to go their separate ways and to settle all matters between them.