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HMRC internal manual

National Minimum Wage Manual

Entitlement to National Minimum Wage: Settlement agreement (formerly compromise agreements) and negotiated settlements

Relevant legislation

The legislation that applies to this page is as follows:

  • National Minimum Wage Act 1998, section 49


A settlement agreement (formerly compromise agreement) is a restrictive covenant which restricts the conduct or activities between parties. The most common use is to agree the actions of an employee after termination of employment and usually involves a financial settlement being made to the employee.

The conditions required to make such a settlement agreement valid are;

  • It must be in writing
  • It must specifically relate to the circumstances of the parties
  • The worker must have received advice from a “relevant independent adviser” as to the terms and effect of the agreement and its effect on the ability of the worker to take a case before an employment tribunal (industrial tribunal in Northern Ireland)
  • The adviser must be identified in the agreement and have suitable insurance or professional indemnity to cover the risk of a claim by a worker in respect of losses caused as a consequence of the advice provided
  • The agreement must state the conditions of section 49 of the Act are satisfied.

The Act defines a “relevant independent adviser” as someone who;

  • is a qualified lawyer who is not engaged by the employer
  • is an officer, official, employee or member of an independent trade union who is not the employer. The person must be certified in writing by the trade union as competent to give advice and as authorised to do so on behalf of the trade union
  • works at an advice centre (whether as an employee or a volunteer) and is not employed by the employer or receives payment from the worker. The person must be certified in writing by the centre as competent to give advice and as authorised to do so on behalf of the centre, or
  • is a person of a description specified in an order made by the Secretary of State unless any of the above reasons exclude them from providing advice.

The details of the settlement agreement are set out on a form which both parties sign to show that they accept the terms of the settlement. A form commonly used for this purpose is COT3 (where the agreement is made through Acas).

See also: Effect of settlement agreements and HMRC settlements on NMW Officers’ investigation (NMWM05380).