August 29, 2025
A Settlement Agreement is a binding legal contract between you and your employer, usually offered when a dispute has arisen, and it can often include terms for your employment to come to an end. In return for a financial package or other benefits, you agree not to bring certain claims against your employer arising out of your employment, either in the Employment Tribunal or the civil courts.
The agreement will normally set out details such as:
- The amount of compensation being paid for loss of your employment
- How and when your employment will end
- Whether you will work your notice period or if not, how much you will receive as pay in lieu of notice
- What you will be paid for holiday pay, bonuses and any other benefits
- Confidentiality clauses, including agreement by both parties not to ‘bad mouth’ the other.
- Agreed wording for references
- A legal costs contribution clause, whereby the employer agrees to pay your legal costs in getting your own independent legal advice on the effect of the agreement.
Because settlement agreements affect your legal rights, you must receive independent legal advice before signing.
What to consider before signing
- Is the financial package fair?
We can help you understand whether the terms offered are reasonable. It is almost always better to agree settlement where possible, but we will always consider with you, whether bringing a claim against the employer might provide a significantly better outcome than accepting the terms offered. Sometimes there needs to be a discussion, leading to renegotiation with the employer if the terms offered initially are inadequate. - What else matters to you?
A settlement isn’t only about money. You may want to secure an agreed reference, ensure benefits continue for a set time, or agree how your departure will be communicated to colleagues. - Do you have enough time?
Employers sometimes set tight deadlines, but you are entitled to a reasonable period to decide — ACAS recommends at least 10 calendar days. Don’t feel pressured to rush. - How will payments be taxed?
Some payments, such as genuine termination payments up to £30,000, can be tax-free, while others (like salary or holiday pay) are taxable. Knowing this helps you understand the true value of the offer. - Are the terms future-proof?
Make sure clauses such as confidentiality, post-termination restrictions, and agreed references won’t cause problems later on.
Why should you take legal advice?
Settlement agreements are drafted by employers to protect their own interests. Having a qualified lawyer review the document ensures that your rights are protected, that the package reflects your circumstances, and that you fully understand what you’re signing. The agreement will not be legally binding if you have not received independent legal advice, and the adviser must certify within the agreement that they have given that advice.
How Bates Wells & Braithwaite solicitors can help
We are experienced in advising employees at all levels on settlement agreements. We’ll explain the agreement in plain English, make sure the terms are fair, and negotiate on your behalf if needed.
If you’ve been offered a settlement agreement, contact our Ipswich office today for clear, practical advice and support.