Settlement Agreements

If your employer has offered you a settlement agreement, you may be wondering whether you should sign it, whether the payment is fair, or what rights you are giving up. A settlement agreement can provide a clean way to resolve an employment dispute, but signing it can also prevent you from bringing certain claims covered by the agreement.

The document therefore needs to be considered as a whole. The payment is only one part of the deal. Notice, holiday pay, bonuses, references, confidentiality, tax wording, restrictive covenants and the claims being waived can all affect whether the proposed terms are suitable.

This page focuses mainly on Great Britain: England, Wales and Scotland. Northern Ireland has a separate employment-law framework, so the position there is different and is explained separately below.

What is a settlement agreement?

A settlement agreement is a written, legally binding agreement between an employer and a worker. It sets out the terms on which particular employment claims are settled or an employment relationship is ended.

Settlement agreements were previously known as compromise agreements. They can be used to resolve an existing dispute, but they can also be proposed before a formal employment dispute has developed.

Depending on the circumstances, an agreement may deal with matters such as:

• a payment to the worker;
• termination of employment and the proposed leaving date;
• notice pay or payment in lieu of notice;
• outstanding holiday;
• bonus or commission arrangements;
• an agreed employment reference;
• confidentiality obligations;
• return of company property;
• post-termination restrictions; and
• specific employment claims that the worker agrees not to pursue.

Acas confirms that settlement agreements are voluntary and are normally reached through discussion and negotiation. Neither side has to accept the initial terms proposed.

Do you have to accept a settlement agreement?

No. A settlement agreement is voluntary. You can reject the proposal, ask for more time, or negotiate different terms.

An employer may propose a settlement because it wants certainty about a workplace dispute or wants to bring the employment relationship to an agreed end. You may also decide that an agreed settlement is preferable to continuing with a disciplinary, grievance or potential tribunal process.

However, an offer should not automatically be treated as the amount you are entitled to receive. A proposed settlement payment is usually part of a negotiated package, and its value needs to be considered alongside the rights and claims you may be giving up.

What makes a settlement agreement legally valid?

For a statutory settlement agreement in Great Britain to validly waive the relevant employment rights, certain conditions must be satisfied.

Among other requirements, the agreement must be in writing, relate to a particular complaint or proceedings, and the worker must receive advice from a relevant independent adviser about the terms and effect of the agreement and its effect on the worker’s ability to pursue the relevant complaint or proceedings.

The agreement must also identify the adviser and confirm that the statutory conditions have been satisfied. The adviser must have appropriate insurance or professional indemnity cover.

An independent adviser may include a qualified lawyer, an appropriately certified and authorised trade union representative, or a suitably certified and authorised advice-centre worker.

The agreement should therefore not be treated like an ordinary employment document that you can sign without taking advice.

What should you check before signing?

A settlement agreement can contain many clauses, and the wording can materially affect what you receive and what rights you retain. The following are some of the areas that commonly need careful review.

1. The settlement payment

Check exactly what payment is being offered and whether it is separate from sums you are already owed under your employment contract or by law.

For example, a settlement package may need to distinguish between a negotiated compensation payment and amounts such as salary, accrued holiday or contractual notice pay.

2. The claims being waived

Check which claims the agreement says are settled. A settlement agreement must identify the particular claims it is intended to cover rather than relying only on a broad statement that every possible claim is waived.

This is particularly important if you believe you may have claims involving dismissal, discrimination, unpaid wages, breach of contract or another employment right.

3. The termination date and notice

Make sure the proposed leaving date is clear and that you understand whether you will work your notice, receive payment instead of working it, or have another arrangement.

4. Holiday, bonus and commission

Check how accrued holiday, bonuses, commission and other outstanding sums will be dealt with. Do not assume that the headline settlement figure automatically includes everything you are owed.

5. References

If a reference is important to your future employment, check whether the agreement contains an agreed form of reference and what the employer has actually agreed to provide.

6. Confidentiality

Confidentiality clauses can restrict what information you can share. They should be read carefully to understand what is confidential, who you can speak to, and what disclosures are permitted.

There is also an important current legal restriction concerning confidentiality provisions and harassment or discrimination. Under section 202A of the Employment Rights Act 1996, as amended by the Employment Rights Act 2025, contractual provisions that purport to prevent certain disclosures relating to relevant harassment or discrimination are void, subject to the statutory framework and any applicable regulations.

7. Post-termination restrictions

Check whether the agreement introduces, preserves or changes restrictions affecting what you can do after leaving. These can include restrictions relating to customers, employees, confidential information or competing activities.

8. Tax wording

The agreement may contain provisions dealing with tax and responsibility for any tax liability. Tax treatment can depend on the nature of the payment and the circumstances, so the wording should not be accepted without understanding what it means for you.

Can you negotiate a settlement agreement?

Yes. Settlement agreements are negotiable. You do not have to accept the employer’s first proposal.

Negotiation can involve more than the headline payment. Depending on the circumstances, discussions may cover the leaving date, notice arrangements, holiday, bonus, reference wording, confidentiality, post-termination restrictions and the scope of the claims being settled.

A sensible negotiation starts with understanding the position that would apply if no agreement were reached. That means considering the employment contract, the facts behind the dispute, the potential claims, available evidence and the risks of continuing the matter.

1. Read the entire agreement. Do not focus only on the compensation figure.
2. Identify what you are giving up. List the claims and contractual rights affected by the agreement.
3. Work out what you are already owed. Separate contractual or statutory sums from the additional settlement element.
4. Consider your alternatives. Think about what happens if negotiations fail, including whether a grievance, disciplinary process, dismissal or tribunal claim may follow.
5. Propose changes where appropriate. A counter-offer can address payment and non-financial terms.
6. Obtain independent advice before signing. The adviser should explain the legal effect of the agreement and the rights you are agreeing to waive.

What are “protected conversations” and “without prejudice” discussions?

The terms are sometimes used interchangeably, but they are not exactly the same legal concept.

Under section 111A of the Employment Rights Act 1996, certain pre-termination negotiations are generally inadmissible in ordinary unfair dismissal proceedings. The protection is subject to statutory exceptions, including circumstances involving improper behaviour and certain automatically unfair dismissal situations.

The separate without prejudice principle can apply where there is an existing dispute and the parties are genuinely trying to settle it. It has its own requirements and exceptions.

Neither label should be treated as a guarantee that everything said in a settlement discussion can never be used as evidence. The circumstances and the type of claim matter.

For example, Acas explains that section 111A protection does not provide the same protection for discrimination claims, and improper behaviour can affect whether settlement discussions remain protected.

What happens if you reject the settlement agreement?

Rejecting a settlement agreement does not automatically mean you have done anything wrong or that you have lost your employment rights.

What happens next depends on the underlying circumstances. The employer may continue with an existing disciplinary or grievance process, continue negotiations, make another proposal, or take another lawful step relating to the employment relationship.

If the proposed agreement arose because of a workplace dispute, rejecting it does not by itself determine whether either side ultimately has a successful legal claim.

This is why the alternative to settlement should be assessed before you decide whether the proposed terms are acceptable. The risks of continuing may be different depending on whether you are still employed, have already been dismissed, have raised a grievance, or believe you have a potential discrimination or other employment claim.

Real-world examples

An employee is offered a settlement after a workplace dispute

An employee has raised concerns about how they have been treated at work and is then offered a settlement agreement. Rather than looking only at the proposed payment, they need to consider what claims may arise from the underlying events and which of those claims the agreement would settle.

An employee is offered a settlement instead of continuing a disciplinary process

An employer proposes an agreed exit while a disciplinary issue is being considered. The employee may want to leave, but should still understand the allegations, the proposed termination terms, the financial package and the effect of signing before deciding whether the offer is acceptable.

An employee believes discrimination is involved

An employee is offered a settlement after raising concerns that may involve discrimination. The agreement’s confidentiality provisions and the claims being waived require particular care because the statutory rules concerning confidentiality and discrimination can affect the wording and legal effect of the agreement.

What documents should you gather?

Independent advice is much more useful when the adviser can see the documents and facts that explain how the settlement proposal arose.

Depending on the circumstances, useful documents may include:

• the settlement agreement and any covering letter;
• your employment contract and relevant policies;
• recent payslips;
• details of holiday, bonus or commission arrangements;
• disciplinary or grievance correspondence;
• emails or messages relevant to the dispute;
• previous settlement proposals or counter-offers;
• any agreed or proposed reference; and
• documents relating to a potential employment tribunal claim.

Keep the documents in their original form where possible. A clear timeline of important events can also help an adviser understand the position quickly.

Settlement agreements in Northern Ireland

Employment law in Northern Ireland is separate from the Great Britain framework. The terminology and legal routes can therefore differ.

For example, Northern Ireland guidance refers to compromise agreements and settlements reached through the Labour Relations Agency. A compromise agreement can be used to give up the right to pursue an employment tribunal claim where the relevant legal requirements, including independent specialist advice, have been satisfied.

If you work in Northern Ireland, you should obtain advice based specifically on Northern Ireland employment law rather than assuming that Great Britain rules on settlement agreements apply in the same way.

When does a settlement agreement need legal advice?

If you have been offered a settlement agreement, independent legal advice is particularly important where the agreement asks you to waive potential employment claims, contains detailed confidentiality obligations, includes restrictive covenants, or follows a disciplinary, grievance, dismissal or discrimination dispute.

The adviser can explain the legal effect of the document, identify issues that may need clarification or negotiation, and help you understand what you would be giving up if you sign.

For a worker, the practical question is often not whether settlement is “good” or “bad” in isolation. It is whether the proposed terms represent an acceptable resolution when compared with the rights, risks, costs and uncertainty of the alternatives.

Common mistakes to avoid

• Signing immediately because the offer looks attractive. The document may waive important rights.
• Looking only at the compensation figure. Notice, holiday, bonuses, references and continuing obligations may also matter.
• Assuming every possible claim is automatically covered. The statutory requirements concerning the claims being settled matter.
• Ignoring confidentiality wording. Check what you can and cannot disclose.
• Assuming a “protected conversation” is completely immune from disclosure. Section 111A has limits and exceptions.
• Missing the significance of post-termination restrictions. These may affect your next job or business activities.
• Failing to obtain independent advice. A settlement agreement should be understood before it is signed.
• Assuming Great Britain and Northern Ireland use identical rules. They do not.

Frequently asked questions

Official guidance and legislation