Settlement Agreements Explained: A Guide for Employees and Employers
Richard Hiron • February 12, 2026
A settlement agreement is a common feature in UK employment law, but it can be confusing for both employees and employers. In his latest insight, Employment Law Consultant Solicitor Richard Hiron helps you to understand what these agreements mean, when they are used, and how approaching them is important to ensuring a fair and legally compliant outcome.
What is a Settlement Agreement & When is it Used?
A settlement agreement is an official legal document that brings any potential claims you might have against your employer to an end, usually in exchange for compensation.
These agreements are most often used when someone is leaving their employment, such as in a redundancy situation, but they can also apply when an employee remains in their role, and both sides wish to resolve a complaint or change in circumstances.
Do You Need a Solicitor to Sign a Settlement Agreement?
Yes. For a settlement agreement to be legally binding, the employee must receive independent legal advice. This advice must come from a solicitor with a current practising certificate who has not acted for the employer in relation to the agreement or the events leading up to it.
Without this independent advice, the settlement agreement will not be valid or enforceable.
What Should Employees Look Out For?
When signing a settlement agreement, you are often giving your employer a number of important assurances. These include not bringing certain claims against them in the future and confirming that their understanding of events is accurate, for instance, that you have not committed an act of gross misconduct.
While employment solicitors are not tax advisers, it is also essential to check that the wording about tax correctly protects you, especially if you are receiving a payment that is meant to be non-taxable.
Can the Amount of the Offered be Negotiated?
Yes, absolutely. A settlement agreement is voluntary, so you do not have to accept the first offer. If the amount offered isn’t satisfactory, you can go back to your employer to ask questions and propose a higher figure before signing.
Of course, negotiation outcomes depend on both parties, and there are no guarantees of an increased offer, but asking can give you peace of mind.
How Quickly Can a Settlement Agreement be Finalised?
According to Acas, employees should be given at least 10 calendar days to consider and receive legal advice on a full written settlement agreement. This is the recommended timeframe in most circumstances.
Some situations may move faster where employees and employers agree to disregard the 10-day calendar approach, but employees should not be placed under undue or inappropriate pressure to sign.
What Happens if Someone Refuses to Sign?
If you decide not to sign, the settlement agreement is treated as if it does not exist. Unless your employer has behaved particularly badly in offering it, you cannot rely on the agreement or its offer as evidence in a court or tribunal.
Your employer might continue with an internal process, which could result in your employment ending, but you would still retain your right to bring a tribunal or court claim.
It’s also worth remembering that if you take legal advice but do not sign the agreement, you will usually need to pay your solicitor’s fees yourself. Employers typically only cover legal fees if the settlement agreement is completed.
Can an Employer Offer a Settlement Agreement Without Performance or Conduct Issues?
Yes. Settlement agreements do not require performance or conduct issues to exist. One of the most common uses is in redundancy situations, especially voluntary redundancies, where employees can elect to leave with an agreed compensation package rather than go through the uncertainty of a redundancy process.
How much compensation should you expect?
Compensation under a settlement agreement varies from case to case. Factors such as conduct, performance, and redundancy situations can all influence the amount offered. Employers often calculate offers based on what they think an employment tribunal would award. If an employee has contributed to their dismissal, that may reduce both a potential tribunal award and the settlement figure.
Are Settlement Agreements Confidential?
Yes, settlement agreements are generally confidential documents. This confidentiality protects both the employer’s and the employee’s reputations. However, there are exceptions, such as whistleblowing situations, communications with HMRC, or legal proceedings involving a breach of the agreement, where disclosure may be necessary.
How can a solicitor help employers draft fair and compliant settlement agreements?
Settlement agreements are intended to protect employers both now and in the future. Using an outdated template or a generic approach can leave your business exposed.
A solicitor can help ensure your agreement is tailored, fair, and legally sound, clearly addressing the specific circumstances, the employee involved, and any potential claims. A well-drafted, bespoke settlement agreement offers the best protection and peace of mind for all parties.
If you need support regarding your settlement agreements to make sure you are protected and compliant, get in touch with
Richard Hiron,
Employment Law Consultant Solicitor, using the email
r.hiron@woodstocklegalservices.co.uk
or by completing the form below.
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