What to Do If You Receive a Settlement Agreement

A settlement agreement (formerly called a compromise agreement) is a legally binding contract between you and your employer that ends your employment on agreed terms. In exchange for signing, you waive your right to bring most employment tribunal claims.

The key things to understand:

You must take independent legal advice. A settlement agreement is not legally valid unless you have received advice from a qualified independent solicitor. Your employer is usually required to contribute to the cost of this advice — typically £250–£500 plus VAT.

You do not have to sign. A settlement agreement is a negotiation, not a fait accompli. The first figure your employer offers is rarely the best they will pay. An experienced employment solicitor can often negotiate a significantly improved settlement.

Check the tax position. The first £30,000 of compensation for loss of employment is usually tax-free. Payments in lieu of notice and holiday pay are taxable. The way the agreement is structured matters.

Look at the reference clause. Ensure the agreement includes either an agreed reference or a clause confirming the employer will only provide a basic factual reference.

Understand what you are waiving. A well-drafted settlement agreement will list specific claims you are waiving. Make sure you understand what those are.

If you have received a settlement agreement and need advice, contact us. We handle settlement agreement reviews quickly — usually within 24–48 hours — and can advise you on whether the terms are fair and whether there is scope to negotiate better.