Understanding a settlement agreement before you sign
A settlement agreement is a legally binding contract. In return for a payment (and sometimes an agreed reference), you agree not to bring specified claims against your employer, usually employment tribunal claims. For it to be valid, you must get advice from an independent adviser on its terms and effect, so employers usually pay towards that cost. You do not have to accept the first offer. The terms can be negotiated, and you are under no obligation to sign at all.
Written by the team behind Agent Zoe, our employment specialist. This guide is general information about UK law, reviewed for accuracy.What a settlement agreement is
A settlement agreement is a legally binding contract between you and your employer. In return for a payment (and sometimes other terms such as an agreed reference), you agree not to bring specified claims against the employer, usually employment tribunal claims. They are common when someone is leaving, and are often raised in a 'without prejudice' or 'protected' conversation.
Independent legal advice is required
A key point many people do not realise: for a settlement agreement to be legally valid, you must get advice from an independent adviser on the terms and effect of the agreement, and especially on the claims you are giving up. That adviser is normally a solicitor, but it can also be a qualified trade union rep or an advice-centre worker. The adviser must be independent of your employer and covered by insurance. Without that advice, the waiver is not binding.
Because of this, employers usually contribute towards the cost of your legal advice. They are not legally obliged to, but it is standard practice, and the amount is often stated in the agreement. It is reasonable to ask them to cover it.
What to check, and your right to negotiate
Before signing, it helps to understand a few things. What claims are you waiving? Does the sum reflect notice pay, holiday pay, and any statutory or contractual redundancy you are owed on top? What do the confidentiality and non-disparagement clauses say, and what reference will you get? You do not have to accept the first offer, as the terms can be negotiated. You are also under no obligation to sign at all.
If you believe you may have a claim (for example unfair dismissal or discrimination), an adviser can help you weigh the offer against what a tribunal might do. No one can promise an outcome.
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What am I giving up if I sign a settlement agreement?
In return for a payment (and sometimes other terms such as an agreed reference), you agree not to bring specified claims against your employer, usually employment tribunal claims. It is a legally binding contract, often raised in a 'without prejudice' or 'protected' conversation.
Do I have to get legal advice before signing?
Yes, for it to bind. For a settlement agreement to be legally valid, you must get advice from an independent adviser on its terms and effect. That adviser can be a solicitor, a qualified trade union rep, or an advice-centre worker. Without that advice, the waiver is not binding.
Will my employer pay for my legal advice?
Usually they contribute. Employers are not legally obliged to, but it is standard practice, and the amount is often stated in the agreement. It is reasonable to ask them to cover it.
Do I have to accept the first offer?
No. You do not have to accept the first offer, as the terms can be negotiated, and you are under no obligation to sign at all. Check what claims you are waiving and whether the sum reflects notice pay, holiday pay and any redundancy owed on top.