What is a settlement agreement?

Settlement agreements are a way of resolving disputes in the workplace and avoiding potentially lengthy and costly employment tribunal proceedings. An employee will usually be provided with a financial settlement in return for agreeing to waive any potential claims, but if a material term of the settlement agreement is breached, many may be unsure of the proper etiquette in enforcing them.


What is a material term?

A material term refers to the most important element of information within a settlement agreement – they are terms that, if breached, would have a serious impact and consequence for the non-breaching party.

Common examples of breaches of material terms include:

  • breach of confidentiality
  • bringing an employer into disrepute through damaging comments
  • pursuing one of the waived actions, such as bringing a tribunal claim
  • non-payment of the Settlement monies

In the UK, there is no specific definition of what does and does not constitute a material breach. Instead, a court will analyse if a breach is significant enough to be considered a material term on a case-by-case basis.


Will both parties still be bound by the terms of the settlement agreement if there is a breach?

When an employee does not comply with a material term, the employer is entitled to withhold payment or recover compensation. The agreement remains valid and both parties are still bound to it.


What happens if, after the employee receives a settlement payout, they breach the agreed terms?

Employers often include a confidentiality clause in their contracts and if an employee breaks these agreed terms after receiving their payment, legal action can be expected to follow. This may include a claim for an injunction to stop further breaches, or for damages as a result of the breach that has occurred.

The employer may also recover some, or all, of the money that was paid to the employee as a form of debt.


Can an employer recover all of the money paid to the employee?

Some settlement agreements include repayment provisions in case of a breach, allowing the employer to claim the money back.

If material terms are broken, the original payment can be repaid as a debt to the employer and future payments can be halted.


How does an employer recover the payments?

A letter before action must be sent to the party in breach to make them aware that they have breached the terms of the agreement. You should also provide evidence to support your position.

You should give a reasonable amount of time to respond, typically a couple of weeks. Depending on the response, you will have to decide whether further enforcement action, such as starting a claim in small claims court, is required.


Need more support?

For advice on settlement agreements, including breach and enforcement, our specialist employment solicitors are on hand to assist you.

Contact us for more information.







Return to the blog