Last Updated: 18 August 2026 I Reading Time: Approx. 6 minutes
Summary
A Settlement Agreement is a legally binding agreement between an employer and employee which can be used to resolve workplace disputes and/or bring an employment relationship to an agreed end. In return for agreed terms, an employee will usually agree not to pursue specified employment claims.
Settlement Agreements can involve much more than simply agreeing a financial payment. The wording can affect your notice pay, bonus, holiday pay, reference, confidentiality obligations, restrictive covenants and ability to work for another employer.
At GLP Solicitors, our Employment Law team advises employees and employers on Settlement Agreements, helping clients understand their rights, negotiate appropriate terms and make informed decisions.
Quick answer
Do you need a solicitor for a Settlement Agreement? Yes. For a Settlement Agreement to be legally valid in relation to employment claims, the employee must receive advice from an appropriate independent adviser on the agreement and its effect on their ability to bring a claim. A solicitor can also identify problematic clauses, explain the financial package and, where appropriate, negotiate improved terms with the employer.
In this article
- What is a Settlement Agreement?
- How does a Settlement Agreement work?
- Do you have to accept a Settlement Agreement?
- What can you negotiate?
- How much time do you have to consider an offer?
- What happens to the money you receive?
- Why independent legal advice matters
- What to do when you receive a Settlement Agreement
- How GLP Solicitors can help
- Frequently asked questions
Key takeaways
- A Settlement Agreement is voluntary – you do not have to accept the offer.
- It can be used to settle specified employment claims and, in some circumstances, to bring employment to an agreed end.
- An employee must receive advice from an independent adviser for the agreement to meet the statutory requirements for settling employment claims.
- Acas recommends that employees are given at least 10 calendar days to consider the formal written terms and obtain independent advice, although what is reasonable depends on the circumstances.
- You may be able to negotiate the payment and other terms rather than simply accepting the employer’s first proposal.
- Not every part of a termination payment is automatically tax-free. The tax treatment depends on what the payment represents.
- The first £30,000 of certain qualifying termination awards can generally fall within the tax-free threshold, but notice pay and other earnings are treated differently.
- Getting legal advice before signing can help you understand exactly what rights you are giving up.
What is a Settlement Agreement?
A Settlement Agreement is a legally binding contract between an employer and employee.
It can be used to settle particular employment disputes or claims and may also be used to agree the terms on which employment will end. Settlement Agreements are often proposed by employers, but either party can propose one.
The agreement will normally set out the terms agreed between the parties. These may include:
- A settlement payment or enhanced termination payment
- Notice arrangements or payment in lieu of notice
- Outstanding holiday pay
- Bonus or commission arrangements
- A reference
- The termination date
- Confidentiality provisions
- Post-termination restrictions
- The employee’s agreement not to pursue specified legal claims
The precise wording matters. A Settlement Agreement is not simply a document confirming that you are leaving your job.
How does a Settlement Agreement work?
A typical process may look like this:
1. Your employer makes an offer
Your employer may approach you with a proposed Settlement Agreement and an initial financial package.
You should not feel that you have to accept the first offer immediately.
2. You obtain independent legal advice
You should take the agreement to an independent adviser who can explain the terms and advise you about the effect of signing it.
For a Settlement Agreement to satisfy the statutory requirements for settling employment claims, the worker must receive advice from a relevant independent adviser and the agreement must meet other specified conditions.
3. The agreement can be negotiated
There may be scope to negotiate the financial package or other terms.
Depending on the circumstances, your solicitor may raise issues concerning:
- The amount of compensation
- Notice pay
- Holiday pay
- Bonus or commission
- The termination date
- The wording of a reference
- Confidentiality
- Restrictive covenants
- Announcements to colleagues or clients
- Contributions towards legal fees
- The claims covered by the agreement
4. Both parties agree the final terms
Once the wording has been agreed, the Settlement Agreement is signed.
You should understand the agreement before signing because it may restrict your ability to bring specified claims against your employer.
Do you have to accept a Settlement Agreement?
No. Settlement Agreements are voluntary.
You do not have to accept the employer’s proposal, and you can negotiate the terms.
Acas states that parties can make proposals and counter-proposals during negotiations until an agreement is reached, or until they recognise that agreement is not possible.
This is one of the reasons it can be useful to obtain legal advice before responding to an offer.
Your solicitor can assess the proposal against your circumstances and help you understand whether the package being offered appears appropriate.
What can a solicitor negotiate in a Settlement Agreement?
A solicitor does not simply check whether the document has been completed correctly.
Depending on the circumstances, they may be able to negotiate several aspects of the agreement.
The settlement payment
The financial offer is often one of the main areas for negotiation.
The appropriate amount will depend on the circumstances, including your contractual rights, potential employment claims, length of service, earnings and the strength of any potential claim.
There is no standard Settlement Agreement payment that every employee is entitled to receive.
Notice pay
You may be entitled to work your notice or receive payment instead.
Notice pay can have different tax treatment from a compensation payment, so it is important to understand how the package has been calculated. GOV.UK confirms that payments representing earnings, including payment in lieu of notice, can be subject to tax and National Insurance.
Holiday pay
Any outstanding holiday entitlement may need to be addressed as part of the termination arrangements.
Bonus and commission
If you are due a bonus, commission or other contractual payment, your solicitor can consider whether the Settlement Agreement deals with it appropriately.
References
You may be able to negotiate the wording or format of an employment reference, particularly where securing future employment is important.
Restrictive covenants
Your existing employment contract may contain restrictions affecting what you can do after leaving.
A Settlement Agreement may amend, reaffirm or deal with these restrictions. It is therefore important to understand the practical effect before signing.
Confidentiality clauses
Settlement Agreements commonly contain confidentiality provisions.
Your solicitor can explain what you are agreeing to keep confidential and whether there are appropriate exceptions, such as disclosures required by law or communications with professional advisers.
The scope of the legal claims being settled
This is particularly important.
For a Settlement Agreement to meet the statutory requirements for settling employment claims, the agreement must identify the specific claims being settled. Simply stating that it settles “all claims” is not sufficient for this purpose.
How much time do you have to consider a Settlement Agreement?
There is no universal legal rule giving every employee exactly 10 days to accept a Settlement Agreement.
However, the Acas Code of Practice recommends that, as a general rule, employees should be given at least 10 calendar days to consider the formal written terms and obtain independent advice. What is reasonable can depend on the circumstances.
If your employer has given you a very short deadline, do not assume you must sign immediately.
Speak to a solicitor as soon as possible. Your circumstances may also mean that additional time is appropriate.
Is a Settlement Agreement payment tax-free?
Not necessarily.
The tax treatment depends on what makes up the termination package.
For example, GOV.UK states that payments such as unpaid wages, holiday pay, bonuses and payment in lieu of notice can be subject to Income Tax and National Insurance.
Certain qualifying termination payments may benefit from a £30,000 threshold, but this does not mean that the entire Settlement Agreement payment is automatically tax-free.
For this reason, you should look carefully at how the proposed payment has been broken down rather than focusing only on the headline figure.
Why do I need independent legal advice?
Independent legal advice is an important part of the Settlement Agreement process.
A Settlement Agreement can significantly affect your legal rights. Once you sign an agreement that validly settles particular claims, you may no longer be able to pursue those claims through an employment tribunal or court.
Your adviser should explain:
- What the agreement means
- Which claims you are agreeing not to pursue
- The financial terms
- Any obligations you will have after leaving
- Any restrictive covenants
- Confidentiality provisions
- Whether there are areas that could be negotiated
- Any other important implications of signing
The adviser must meet the relevant statutory requirements, including being independent and appropriately insured.
Who normally pays for Settlement Agreement legal advice?
It is common for an employer to offer a contribution towards the employee’s legal fees.
However, the employer is not automatically legally required to pay your solicitor’s fees simply because they have offered you a Settlement Agreement. Acas advises that employers should consider offering to pay for independent advice, but states that they do not have to do so.
Check your Settlement Agreement carefully to see what contribution has been offered and whether it is sufficient to cover the advice you require.
What should I do if I have been offered a Settlement Agreement?
If you have received a Settlement Agreement, avoid signing it before you have had the opportunity to understand the terms.
A sensible starting point is to:
- Read the agreement carefully.
- Check the deadline your employer has given you.
- Obtain independent legal advice.
- Gather your employment contract, payslips and relevant correspondence.
- Ask questions about anything you do not understand.
- Consider whether the financial package reflects your circumstances.
- Ask your solicitor whether any terms should be negotiated.
- Only sign once you are satisfied that you understand the agreement.
The sooner you obtain advice, the more time there may be to negotiate before any deadline.
How GLP Solicitors can help
At GLP Solicitors, our Employment Law team advises employees and employers on Settlement Agreements.
We understand that receiving a Settlement Agreement can be an important moment in your career, particularly where redundancy, restructuring, workplace disputes or an agreed departure are involved.
Our approach includes:
Clear, practical legal advice
We explain the agreement in straightforward language so you understand what you are signing and what rights may be affected.
Reviewing the proposed terms
We can review the Settlement Agreement and identify provisions that may require clarification, amendment or negotiation.
Negotiating where appropriate
Where there is scope to improve the proposed terms, we can communicate with your employer or their representatives on your behalf.
Supporting you through the process
Our team aims to keep you informed throughout the process, with clear communication and regular updates.
This client feedback reflects the experience of some of the people we have assisted:
GLP helped me through a voluntary redundancy recently and my experience was made uncomplicated and easy with regular detailed updates by Olivia. She made an unrealistic clause disappear and kept the door open for any future change of mind to start work at another company.
From the moment I got in touch, I felt reassured and confident I was in safe hands. Olivia Hartley was assigned to my case, and she guided me through every step with empathy, clarity, and care. My case was handled professionally and efficiently, and I was kept informed throughout the entire process.
Sought help with GLP solicitors in respect of a Settlement Agreement with my employer. Alexander was great, checked the agreement, highlighted implications to me of signing the agreement, liaised with my employer and kept me informed throughout the process. Highly recommended.
These reviews highlight some of the practical support clients value when dealing with Settlement Agreements: clear explanations, careful document review, negotiation and regular communication.
Frequently Asked Questions
No. A Settlement Agreement is voluntary. You do not have to accept the employer’s offer, and you can negotiate the proposed terms. A Settlement Agreement only becomes binding when the required conditions are satisfied and the agreement is properly concluded. Acas confirms that parties can make proposals and counter-proposals during negotiations before reaching an agreement.
You need advice from an appropriate independent adviser for a Settlement Agreement to meet the statutory requirements for settling employment claims. A qualified solicitor is one type of relevant independent adviser. The adviser must meet requirements concerning independence, insurance and the advice provided.
Yes. Settlement Agreements are negotiable, and you do not necessarily have to accept the employer’s first proposal. Depending on your circumstances, negotiations could cover the settlement payment, notice arrangements, references, restrictive covenants, confidentiality provisions and other terms. Your solicitor can advise you on which points may be appropriate to raise.
There is no fixed amount that everyone should receive. The value of an offer depends on factors such as your contractual entitlements, potential claims, earnings, length of service and the circumstances surrounding the proposed termination. Your solicitor can assess the offer against your individual circumstances and advise whether there may be grounds for seeking improved terms.
Not necessarily. Some qualifying termination payments can benefit from the £30,000 tax threshold, but certain elements, including unpaid wages, holiday pay, bonuses and payment in lieu of notice, can be taxable. The tax treatment depends on the individual components of the package.
Yes. Settlement Agreements are voluntary. If you do not agree with the proposed terms, you can decline the offer or attempt to negotiate different terms. However, the consequences of refusing an offer will depend on your wider employment circumstances, so it can be sensible to obtain legal advice before making a decision.
If the agreement is legally valid, you will generally be giving up the right to pursue the specific employment claims covered by it. You will also become bound by the other terms of the agreement, which could include confidentiality obligations or post-termination restrictions. You should therefore make sure you understand the agreement fully before signing.