Clear, practical advice before you sign.
In most cases, your employer will contribute towards or fully cover your legal fees.
If you have been offered a settlement agreement, the law requires you to receive independent legal advice from a qualified solicitor before it can become legally binding. At Hibberts Solicitors, our employment law solicitors provide clear, practical guidance to ensure you fully understand the terms of the agreement and how it affects your rights.
Settlement agreements often contain complex terms, restrictions and legal implications. Our settlement agreement solicitors explain what the agreement means for you, advise whether the offer is fair, and confirm whether the terms can be negotiated to achieve a better outcome.
You will be advised by a qualified employment law solicitor, such as Camille Renaudon, Partner and Head of Employment, who regularly supports employees through settlement agreement negotiations. Whether you need urgent advice to sign your agreement quickly, or more detailed specialist guidance on your position and options, our employment solicitors are here to help.
We provide appointments remotely via video call across the UK, or in person at our offices in Crewe, Nantwich, Tarporley and Whitchurch. Turnaround is typically within 1-2 working days.
A settlement agreement is a legally binding contract between an employer and an employee. Under the agreement, the employee agrees to waive their right to bring claims, such as unfair dismissal, discrimination under the Equality Act 2010, or breach of contract, against the employer, usually in exchange for a financial payment.
Settlement agreements are governed by section 203 of the Employment Rights Act 1996. For an agreement to be valid, the employee must receive independent legal advice from a qualified solicitor or other authorised adviser.
Before July 2013, settlement agreements were known as compromise agreements. The legal effect is the same – only the name changed. If your employer or their solicitor refers to a compromise agreement, they are referring to the same type of document.
Settlement agreements are typically used to bring employment to an end on agreed terms, although they can also be used to resolve a workplace dispute without the employee leaving. In either case, the terms are negotiated voluntarily. You are not obliged to sign.
Employers offer settlement agreements in a wide range of circumstances. The most common situations include:
Redundancy and restructuring – where the employer wants to agree exit terms quickly, avoid a lengthy redundancy consultation process, or offer enhanced terms in exchange for a clean break. If you have been offered a settlement agreement in a redundancy situation, see our guidance on settlement agreements in redundancy and workplace disputes.
Performance or disciplinary concerns – where the employer may prefer to agree a departure rather than proceed through a formal performance improvement or disciplinary process.
Workplace disputes and grievances – including disputes involving allegations of discrimination, harassment or whistleblowing, where the employer may wish to resolve the matter without the risk and cost of an employment tribunal claim.
Mutual agreement – sometimes an employment relationship simply breaks down. A settlement agreement can allow both parties to part ways on agreed terms, including an agreed reference and financial settlement.
Whatever the circumstances, you should not feel pressured into signing. ACAS recommends that employees are given at least 10 calendar days to consider a settlement agreement offer.
Every settlement agreement is different, but most will cover the following terms:
Financial terms – including any termination payment (sometimes called compensation or an ex-gratia payment), payment in lieu of notice (PILON), accrued holiday pay, bonus or commission payments, and statutory or enhanced redundancy pay. In many cases, the first £30,000 of a termination payment can be paid free of income tax.
Agreed reference – the wording of a reference your employer will provide to prospective employers. This is often one of the most valuable non-financial elements of a settlement agreement.
Confidentiality and non-disparagement – most agreements include clauses preventing both parties from disclosing the terms of the agreement or making negative statements about one another.
Post-employment restrictions – the agreement may preserve or introduce restrictive covenants, such as non-compete or non-solicitation clauses, which could restrict your future employment. Our solicitors will advise on whether these restrictions are reasonable and, where appropriate, negotiate their removal or reduction.
Warranties and indemnities – the agreement will usually require you to confirm certain matters are true (for example, that you have not committed acts of gross misconduct). If a warranty is later found to be untrue, the employer may seek to recover some or all of the settlement payment. It is important that you understand these provisions before signing.
Waiver of claims – the agreement will contain a list of the employment claims you are agreeing not to bring. This typically covers unfair dismissal, discrimination, breach of contract, redundancy payments, and other statutory and contractual claims. Certain claims, such as accrued pension rights and personal injury claims you are not yet aware of, usually cannot be waived.
For a fuller explanation of what to expect from a typical settlement, read our guide on what is a reasonable settlement agreement.
For a settlement agreement to be legally binding under section 203 of the Employment Rights Act 1996, it must satisfy all of the following conditions:
If any of these conditions is not met, the agreement is not valid and cannot prevent the employee from bringing claims. This is why the adviser’s certificate, signed by your solicitor confirming they have provided the required advice, is a mandatory part of every settlement agreement.
For more on this topic, see our guide on when does a settlement agreement become binding.
Independent legal advice is not optional. It is a legal requirement. Without it, the settlement agreement cannot prevent you from bringing claims such as unfair dismissal or discrimination, and your employer cannot rely on the agreement.
When you instruct Hibberts, your solicitor will:
Many employees have had no previous experience of a settlement agreement and may be unsure about their employer’s motives. We understand that and will take the time to explain your options clearly, so that you can make a fully informed decision.
If you are a senior employee or executive, you may wish to read our guidance on settlement agreements for senior employees and professionals.
You are not obliged to accept the first offer. In our experience, there is often scope to negotiate improved terms, both financial and non-financial.
Common areas for negotiation include the overall termination payment, tax-efficient structuring of payments (for example, employer pension contributions or outplacement services), the wording of an agreed reference, the scope and duration of restrictive covenants, and confidentiality provisions.
Settlement negotiations are usually conducted on a without prejudice basis, meaning that the discussions cannot be referred to in any subsequent employment tribunal proceedings. This allows both parties to negotiate freely.
Under section 111A of the Employment Rights Act 1996, employers can also initiate what is known as a protected conversation – a pre-termination discussion about exit terms that is inadmissible in ordinary unfair dismissal proceedings, even where there is no pre-existing dispute. There are exceptions, including claims involving discrimination or whistleblowing.
For more detail on how negotiations work in practice, including what terms can often be improved, read our guidance on negotiating a settlement agreement.
Understanding the tax treatment of your settlement is important. It directly affects how much you take home.
The £30,000 exemption – under section 401 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), the first £30,000 of a genuine termination payment (also known as compensation for loss of employment) can be paid free of income tax and National Insurance contributions. This includes statutory and enhanced redundancy payments. Any amount above £30,000 is taxable.
Taxable payments – payments that you are contractually entitled to, such as salary, notice pay, accrued holiday pay, bonus and commission, are subject to tax and National Insurance in the normal way, regardless of whether they are paid through a settlement agreement.
Post-employment notice pay (PENP) – if you have not worked or been paid your full contractual notice period, HMRC requires a proportion of the termination payment equivalent to the unserved notice to be treated as taxable income. This is calculated automatically and can reduce the tax-free element of your settlement.
Tax-efficient structuring – in some cases, it may be possible to structure the settlement in a way that is more tax-efficient. For example, the employer may agree to make a contribution directly into your pension scheme (subject to annual allowance limits), or to provide outplacement support or a contribution to legal fees, which can be paid without tax deductions.
Our solicitors will advise on the tax implications of your settlement and, where appropriate, suggest ways to maximise the amount you receive. For specific tax advice, we may recommend that you also consult a tax adviser.
In the majority of cases, your employer will agree to make a contribution towards your legal fees as part of the settlement agreement. This contribution is typically between £300 and £750 plus VAT.
Our guarantee: where the employer’s contribution is a minimum of £300 plus VAT, we guarantee to advise you on the settlement agreement at no cost to you, provided you sign the agreement at the end of the first appointment.
If you choose to instruct us to negotiate on your behalf, there is a possibility that costs may exceed the employer’s contribution. We will always discuss this with you clearly before any additional work is carried out, so there are no surprises.
For a full explanation of how fees work, including what happens if negotiations are needed, see our page on settlement agreement legal fees and who pays.
While a settlement agreement involves giving up the right to bring future claims, it can offer significant benefits:
Whether a settlement agreement is right for you depends on the strength of your position and the terms being offered. Our solicitors will advise you on this during your consultation.
Settlement agreements are commonly offered alongside redundancy, particularly where the employer is offering enhanced terms above the statutory minimum, or where they wish to conclude the process without a formal consultation.
If you have been offered a settlement agreement in a redundancy situation, we will advise on whether the redundancy is genuine, whether the financial offer reflects your entitlements and the strength of any claims you may have, and whether improved terms can be negotiated. This may include an enhanced payment, agreed reference or release from restrictive covenants.
For detailed guidance on how settlement agreements work in redundancy and workplace disputes, including performance management and disciplinary situations, see our page on settlement agreements in redundancy and workplace disputes.
If you are a director, partner, senior manager or C-suite executive, your settlement agreement is likely to involve additional complexity. Share options and long-term incentive plans (LTIPs), deferred bonus and commission structures, pension contributions, board resignation and Companies House filings, and post-termination restrictions may all need to be addressed.
Reputation protection, including the wording of an agreed departure announcement and reference, is often a critical consideration at this level. For individuals subject to regulatory oversight, such as the FCA Senior Managers and Certification Regime (SM&CR), there may be additional obligations to manage.
Our employment solicitors have experience advising senior employees on complex, high-value exits. Read our dedicated guidance on settlement agreements for senior employees.
If you are an NHS employee who has been offered a settlement agreement as part of a voluntary redundancy scheme, Mutually Agreed Resignation Scheme (MARS), or any other exit arrangement, we can provide the independent legal advice required before you sign.
We regularly advise employees of NHS England, Integrated Care Boards and Commissioning Support Units on NHS-specific settlement terms, including re-employment clawback provisions and pension implications.
In most cases, your employer’s legal fee contribution will fully cover the cost of our advice. Read our dedicated guidance on NHS settlement agreements.
We act for employers and businesses of all sizes who need settlement agreements drafted, reviewed or negotiated. Whether you need to agree terms with an individual employee or manage a group exit, we can assist at short notice.
Our advice for employers includes drafting settlement agreements and accompanying documentation, preparing scripts and guidance for settlement discussions (including protected conversations under section 111A ERA), and advising on the tax treatment of termination payments to ensure compliance with HMRC requirements.
If you are an employer looking for settlement agreement support, please contact our employment team on 01270 215117 or make an enquiry online.
Deciding whether to accept a settlement or pursue a claim through the employment tribunal is one of the most important decisions you will make. A settlement offers certainty, speed and a clean break. A tribunal claim offers the possibility of a larger award but comes with significant risk, cost and delay. Most claims take 6 to 12 months or longer to reach a final hearing, with no guarantee of success.
Our solicitors will help you weigh up the strength of your claims, the value of the settlement on offer, and the practical and financial risks of proceeding to tribunal. In many cases, a well-negotiated settlement agreement delivers a better outcome than litigation.
Advice provided by experienced employment law solicitors with extensive settlement agreement expertise.
Answers to common questions employees ask when offered a settlement agreement.
As an employee you have to receive independent legal advice otherwise your Settlement Agreement won’t be valid. If you were to sign it and send it back then the document is not legally binding. Settlement Agreements will have an adviser’s certificate attached to it and this is where the legal adviser also has to sign the document to confirm that they have provided independent legal advice to the employee.
A Settlement Agreement or Compromise Agreement is a written document entered into and signed by an employer and an employee which settles or compromises the employee’s right to pursue claims they may have against the respondent, typically their current or former employer. It is also referred to as a compromise agreement. In return for entering into the Settlement Agreement or Compromise Agreement, the employee usually receives a payment, known as a Termination Payment, as compensation for agreeing to the terms outlined in the agreement.
Contact Hibberts Solicitors to arrange an appointment with a friendly and approachable employment law specialist. We will be able to advise you quickly and we don’t use jargon or complicated technical language.
If you have been given a short deadline to sign, read our guidance on urgent settlement agreement advice, including what to do next and how quickly advice can often be provided.
Settlement Agreements are more common than you think although many people have never heard of them. It is absolutely vital that you find an experienced legal adviser to advise you upon the Settlement Agreement and you should use an employment specialist who regularly advises on settlement agreements, as we do.
If you need advice or think you may be offered a settlement agreement in the near future please contact the employment department at Hibberts LLP on 01270 215117. We will arrange an appointment at a convenient time and location to advise you.
Yes. We regularly advise directors, senior managers and professionals on settlement agreements and negotiated exits.
Read more about senior settlement agreements →
ally the employer will agree to make a contribution toward the employee’s legal fees and the majority of our clients to not have to pay a penny out of their own pocket. Of those that do they are clear about the point at which costs become payable and it is entirely their decision. You will not get an nasty surprises or unexpected bills.
For a clearer explanation of costs, employer contributions and when (if ever) you may need to pay personally, see our page on
settlement agreement legal fees and who pays.
The amount of the legal costs contribution by your employer will differ from case to case but maybe anywhere between £300 + vat – £750 + vat.
As long as the employer’s contribution is a minimum of £300 + vat we guarantee to advise you upon a Settlement Agreement without any charge to you if you sign the Agreement at the end of our first appointment.
Should you choose not to sign the Agreement but instruct us to negotiate on your behalf then in those circumstances there is a risk of you having to pay towards the costs of our work. We will discuss this with you clearly first so that you are well aware of that possibility and are able to make an informed decision. We will always keep you advised about the likely costs involved in the matter and will tell you if at any point we think our costs may exceed the contribution offered by the employer.
Generally, our first appointment with you is around 60 minutes. We will gather information from you about the background to the matter and how, why and when the Settlement Agreement was offered.
Our role is two-fold; firstly we need to assess what claims you have or may have against the employer and if appropriate we will then go on to advise you about the potential values of such claims. The second aspect of our role as the legal adviser is to advise you upon the Settlement Agreement itself and make sure you understand it.
We go through the document with you, advise you in detail upon the content and you will have the opportunity to ask any questions that you wish to.
At the end of the appointment we will advise you upon the options open to you and we will advise you of any amendments we suggest could or should be made to the Agreement.
Ultimately, how you choose to proceed is entirely a matter for you, our job is to ensure that you have received personal and professional advice upon the Settlement Agreement offered to you, that you fully understand the document so that you can then make an informed decision about how to proceed.
About 2/3 of our clients will sin at the end of that first appointment. Our job then is to ensure a copy signed by you and your legal adviser is returned promptly to your employer. We will also request that both you the client and we are provided with a copy of the fully executed document, once it has been signed by the employer as well. Only then is it a legally binding contract you see.
If you choose to negotiate the contents of the settlement agreement then we will discuss with you whether you would like us to do it for you. Nearly all clients do ask us to as in our experience that gives you a better chance of achieving the changes you are asking for.
If having the benefit of our advice you decide that you do not wish to sign the Agreement in its’ original form then, with your consent, we would negotiate the terms of the Agreement with your employer. We will keep you fully updated about the content and the outcome of those negotiations.
That is an option that a small number of our clients choose. If so one practical point to be aware of is that often the employer will not make any payment towards costs and so you would normally be billed for our time spent on your file. You will bear that in mind when deciding whether or not to arrange an appointment or seek legal advice.
More information will be given to you when you contact us to book your appointment.
Please contact our employment department and speak to our head of department Camille Renaudon on 01270 215117 to discuss further. Alternatively, you can contact us here.
We can arrange an appointment for you at a time and location to suit you and we have offices across South Cheshire and North Shropshire ready to discuss your settlement agreement.
Yes. Before July 2013, settlement agreements were called compromise agreements. The name was changed by the Enterprise and Regulatory Reform Act 2013, but the legal effect is the same. If you have been offered a document called a compromise agreement, it is subject to the same legal requirements as a settlement agreement and you will still need independent legal advice before signing.
Not exactly, although most settlement agreements contain confidentiality provisions that function similarly to a non-disclosure agreement (NDA). The confidentiality clause typically prevents both parties from disclosing the existence or terms of the agreement, with limited exceptions – for example, disclosure to a spouse, tax adviser, or regulatory body. The key difference is that a settlement agreement covers a much wider range of terms beyond confidentiality, including financial payments, the waiver of claims, and post-employment restrictions.
You are under no obligation to sign. If you decide not to accept the offer, your employment continues on its existing terms, and the employer would need to follow the appropriate process – whether that is a redundancy consultation, disciplinary procedure, or other route – if they still wish to end the relationship. The settlement offer and any without prejudice discussions generally cannot be used against you in subsequent proceedings.
In most cases, your employer will contribute towards or fully cover your legal fees.
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