What is a settlement agreement?
A settlement agreement is a contract where your employer offers you a sum of money and in return, you agree not to pursue legal claims against them (unfair dismissal, discrimination, etc.). It's a way to end disputes without tribunal.
When might you get offered one?
- After ACAS early conciliation (common settlement method)
- During redundancy process
- When a dispute arises and your employer wants to settle before tribunal
- As a severance package when leaving
Important terms to watch
- Payment amount: What you're getting (redundancy pay, compensation, settlement).
- Tax treatment: Whether it's tax-free or taxable. The first £30,000 of termination payments is usually tax-free.
- What you're giving up: Which claims you cannot pursue (e.g., "all employment claims up to [date]").
- Confidentiality clause: Whether you can tell others about the settlement or the reason you left.
- Reference: What reference your employer will give future employers.
- Waiver of claims: This is crucial—it says you give up the right to claim. Be clear what you're waiving.
Before you sign
Get legal advice. Settlement agreements remove your right to claim. A solicitor can advise if the payment is fair and what you're giving up.
Don't rush. You don't have to sign immediately. Take time to review it.
Negotiate. If the payment seems low, you can counter-offer before signing.
Check tax implications. Ask your accountant or solicitor about tax (especially if over £30,000).
What you can't waive
Even in a settlement agreement, some rights cannot be waived: whistleblowing rights, the right to report to regulators, personal injury claims, pension rights (usually). These are not affected by settlement.