A settlement agreement is a legally binding contract between an employer and an individual. To validly settle most statutory employment claims, the statutory requirements contained in the Employment Rights Act 1996 must be satisfied, including that the individual has received advice from an independent adviser.
Settlement agreements can offer certainty to both employers and individuals. However, signing one usually means agreeing to settle specified legal claims arising out of your employment or its termination. Before signing, it is important to understand the legal effect of the agreement, the claims being settled and any continuing obligations that may apply after your employment has ended.
Obtaining independent legal advice allows you to make an informed decision based on your own circumstances.
1. A Settlement Agreement Is Voluntary
Settlement agreements are voluntary. Neither an employer nor an individual is generally required to enter into one.
If you decide not to sign the proposed agreement, your employer may continue with its existing employment process, which could include redundancy, disciplinary proceedings, performance management or another workplace procedure.
Whether signing is the right option depends on the facts of your individual case and the legal advice you receive.
2. Independent Legal Advice Is Required
To validly settle most statutory employment claims, the statutory requirements must be satisfied. One of those requirements is that the individual receives advice from an independent adviser who meets the statutory criteria. In practice, this is commonly an SRA-regulated employment solicitor.
Your solicitor will usually explain:
- The legal effect of the agreement.
- The statutory and contractual claims identified within it.
- The rights you are agreeing to settle.
- Any ongoing obligations after your employment ends.
- Any questions you have before deciding whether to sign.
Where appropriate, your adviser will also complete the statutory adviser’s certificate required by the agreement.
3. Read Every Clause Carefully
Many people understandably focus on the compensation being offered. However, the financial package is only one part of a settlement agreement.
You should also carefully review clauses dealing with:
- Confidentiality.
- Restrictive covenants.
- Return of company property.
- Intellectual property.
- Future announcements.
- Agreed employment references.
- Post-termination obligations.
Some of these provisions may continue to apply long after your employment has ended.
Understanding their practical effect before signing is just as important as understanding the financial terms.
4. Some Settlement Agreements Can Be Negotiated
Not every settlement agreement is negotiable. However, depending on the circumstances, some agreements can be amended before they are signed.
Whether negotiations are appropriate will depend on the legal issues involved, the commercial circumstances and the willingness of both parties to reach agreement.
Where appropriate, discussions may include:
- Compensation.
- Notice payments.
- Holiday pay.
- Bonus or commission.
- Employer contributions towards legal fees.
- Restrictive covenants.
- Confidentiality provisions.
- Agreed employment references.
Your solicitor can advise whether it is appropriate to seek amendments in your particular circumstances.
5. Employers Often Contribute Towards Legal Fees
It is common for employers to contribute towards the cost of obtaining independent legal advice on a settlement agreement. This helps ensure the agreement can be completed efficiently.
However, employers are generally not legally obliged to pay your legal fees. The amount offered varies and is usually stated in the agreement.
If the proposed contribution is unlikely to cover the work reasonably required, your solicitor can advise whether it may be appropriate to seek an increased contribution as part of any discussions.
6. Understand the Tax Position
The tax treatment of payments made under a settlement agreement depends on the
nature of each payment and the legislation in force at the relevant time.
Different payments, such as:
- Salary
- Notice pay
- Holiday pay
- Bonuses
- Compensation payments
Your solicitor can explain the legal provisions within the agreement. Where
detailed tax advice is required, you should also consider obtaining advice from
a suitably qualified tax adviser or accountant.
7. Restrictive Covenants May Continue After You Leave
Many employment contracts already contain restrictive covenants.
A settlement agreement may:
- Confirm existing restrictions.
- Amend existing restrictions.
- Introduce new post-termination obligations.
These clauses may affect your ability to:
- Join a competitor.
- Contact former clients.
- Recruit former colleagues.
- Use confidential information.
Before signing, it is important to understand exactly what obligations will
continue after your employment has ended.
8. An Agreed Reference May Be Included
Many settlement agreements include an agreed employment reference.
This can provide certainty for both parties by setting out the wording that will
be supplied to prospective employers if a reference is requested.
Whether an agreed reference is included depends on the negotiations between the
parties and the terms ultimately agreed.
9. Take Time Before Deciding
A settlement agreement is an important legal document and should not normally be
signed without careful consideration.
The ACAS Code of Practice on Settlement Agreements recommends that, unless the
parties agree otherwise, individuals should normally be given at least 10
calendar days to consider a written settlement agreement.
This period allows you to obtain independent legal advice and fully understand
the consequences of signing.
10. Every Settlement Agreement Is Different
No two settlement agreements are exactly the same.
The appropriate advice will depend on factors such as:
- Your employment contract.
- The circumstances leading to the agreement.
- Any potential legal claims.
- The financial terms.
- Ongoing obligations after termination.
Obtaining independent legal advice ensures you understand your legal position
before making a decision.
What a Settlement Agreement Cannot Usually Prevent
Although settlement agreements often contain confidentiality clauses, they
cannot generally prevent an individual from:
- Reporting criminal conduct.
- Making a protected disclosure (whistleblowing) where permitted by law.
- Co-operating with a regulator or law enforcement agency.
- Complying with a legal obligation.
The scope of any confidentiality clause should always be carefully reviewed
before signing.
Protected Conversations and “Without Prejudice” Discussions
Settlement agreements are often preceded by discussions about bringing the
employment relationship to an end.
Some discussions may take place on a “without prejudice” basis, while others
may be protected conversations under section 111A of the Employment Rights Act
1996.
The legal effect of these discussions depends on the circumstances, and they do
not apply in every situation. If you are unsure, your solicitor can explain how
these rules may affect your case.
Frequently Asked Questions
Do I have to sign a settlement agreement?
No. Settlement agreements are voluntary. If you choose not to sign, your
employer may continue with its existing employment process.
Can I negotiate the terms?
Sometimes. Whether changes can be negotiated depends on the circumstances and
the willingness of both parties to reach agreement.
Who pays my legal fees?
Many employers contribute towards legal fees, although they are generally not
legally required to do so.
How quickly can I receive legal advice?
In many cases, independent legal advice can be provided promptly by telephone,
video call or in person, depending on your circumstances.
Can I receive advice if I live outside London?
Yes. We advise clients throughout England and Wales using telephone and video
appointments as well as face-to-face meetings.
Will signing stop me bringing future claims?
A settlement agreement normally settles the specific claims identified within
it, provided the relevant statutory requirements have been satisfied. It does
not automatically waive every possible future claim.
Why is independent legal advice important?
Independent legal advice helps ensure you understand the legal effect of the
agreement, the claims being settled and any continuing obligations before you
decide whether to sign.
Contact Our Employment Law Team
If you have received a settlement agreement and require independent legal advice,
our Employment Law team is here to help.
We offer:
- Independent legal advice on settlement agreements
- Prompt appointments
- Telephone and video consultations
- Advice for clients throughout England and Wales
- Practical guidance tailored to your individual circumstances
Telephone: 020 8903 7017
Email: employmentlaw@thelegalpractice.co.uk
Why Choose The Legal Practice Solicitors?
Our Employment Law team provides clear, practical and independent advice on
settlement agreements for clients across England and Wales.
We aim to:
- Explain your legal position in plain English.
- Review the agreement carefully.
- Answer your questions.
- Advise on the legal effect of the terms.
- Negotiate amendments where appropriate.
- Help you make an informed decision with confidence.
Whether your agreement relates to redundancy, workplace restructuring,
disciplinary issues, performance concerns or another employment matter, we are
here to assist.
Need Independent Advice on a Settlement Agreement?
If you have received a settlement agreement and would like independent legal advice, our experienced Employment Law team can help.
We provide clear, practical advice, explain the legal effect of the agreement, answer your questions and, where appropriate, negotiate amendments on your behalf.
Call: 0208 903 7017
Email: employmentlaw@thelegalpractice.co.ukArrange your appointment today and ensure you fully understand your legal position before deciding whether to sign.
Disclaimer
This article is provided for general information only and reflects the law of England and Wales as at July 2026.
It does not constitute legal or tax advice and should not be relied upon as a substitute for advice tailored to your individual circumstances.
Settlement agreements vary significantly depending on the facts of each case. You should always obtain independent legal advice before signing any settlement agreement.
The Legal Practice Solicitors accepts no liability for reliance placed upon this article without first obtaining appropriate legal advice.
Reading this article does not create a solicitor-client relationship between you and The Legal Practice Solicitors
