If you have been offered a settlement agreement, it is important not to sign it without independent legal advice. These agreements are legally binding and usually mean giving up your right to bring an Employment Tribunal claim.
In many cases, the first settlement agreement offer is not the final or best offer available. Employees often improve the financial terms, reference wording, or restrictions after legal review and negotiation.
A settlement agreement is a legally binding contract between an employer and employee that ends employment on agreed terms. In exchange for a financial payment, the employee agrees not to bring most Employment Tribunal claims. Independent legal advice is required for the agreement to be valid in the UK.
At O’Donnell Solicitors, we advise employees on settlement agreements, helping you understand exactly what you are being offered, whether it is fair, and whether you may be entitled to more. We review your settlement agreement and identify whether your employer’s offer is below what you may be entitled to – often within 24–48 hours. Start your review by emailing Kenneth.Lees@odonnellsolicitors.co.uk or calling 01457 761 320 for a free, no obligation discussion.
In most cases, we provide advice on the terms and effect of the settlement agreement within the fee contribution offered by your employer. We also offer rapid appointments, either in person at our offices in Uppermill and Grasscroft, or by remote video meeting if you are based elsewhere in England and Wales.
What is a Settlement Agreement?
A settlement agreement (formerly known as a compromise agreement) is a legally binding contract between an employee and employer. It usually:
- Ends your employment on agreed terms
- Provides a financial payment
- Requires you to waive your right to bring most legal claims relating to your employment and its termination
Once signed, it is final, binding on all parties, and enforceable in law.
Settlement agreements are commonly used in:
- Redundancy situations
- Workplace disputes or grievances
- Performance or conduct concerns
- Mutual exits negotiated between employer and employee
What Does a Settlement Agreement Mean for You?
If you sign a settlement agreement, you will usually:
- Give up your right to bring Employment Tribunal claims
- Receive a termination payment and final employment benefits
- Agree confidentiality and post-employment terms
- Leave your job on an agreed date
Because of these consequences, independent legal advice is legally required before signing.
Why You Have Been Offered a Settlement Agreement
Employers usually make settlement offers to reduce legal risk and bring matters to a close quickly, particularly when they want to:
- End employment without formal dismissal
- Avoid the risk of an Employment Tribunal claim
- Resolve workplace issues quickly
- Agree a confidential exit arrangement
In many cases, the initial offer reflects the employer’s preferred resolution rather than the maximum they may be willing to pay. Many employees are initially offered less than they are legally or strategically entitled to. This is why many employees receive improved terms after legal review and negotiation.
For employees, this can be an opportunity to secure a financial package, avoid a stressful disciplinary or tribunal process and negotiate better exit terms.
What Is Included in a Settlement Agreement?
- Settlement Payment
The settlement payment typically includes salary and benefits up to the termination date, notice pay/payment in lieu of notice (‘PILON’), a termination payment, and holiday pay. Bonus and incentive payments may sometimes be included.
We identify whether your employer’s offer is missing contractual or statutory payments and calculate what you should realistically be receiving. If not, we will work with you to negotiate with your employer. We regularly secure improved settlement payments and reference terms for employees across the country.
- Waiver of Legal Claims
You agree not to pursue claims relating to your employment and its termination. These include claims for unfair dismissal, discrimination, victimisation and harassment, and breach of contract. Some limited claims are usually excluded from the waiver including for breach of the settlement agreement, for some personal injury claims, and accrued pension rights.
We explain the waiver of claims to ensure that you fully understand what rights you are giving up.
- Tax Treatment of Payments
Tax can significantly affect what you receive. The first £30,000 of the termination payment is tax-free in many cases, but income tax and National Insurance contributions are usually payable on salary, notice pay/PILON, holiday pay and other payments depending on your PAYE status. The agreement will also contain a tax indemnity, meaning you are liable for any additional PAYE deductions that may be payable on the payments in the future.
We advise on what the settlement agreement says about the tax treatment of the payments and calculate your likely net take-home amount so you can compare the offer on a true after-tax basis before deciding.
- Employment Reference
Many settlement agreements include a pre-agreed reference, usually confirming your job title, dates of employment and (occasionally) a neutral factual statement.
We routinely improve reference wording where it could negatively affect future employment opportunities.
- Confidentiality and Restrictions
You will normally be asked to keep the existence and terms of the settlement agreement confidential, to return all company property and delete all confidential information, and to not make negative statements about your employer.
We check these clauses are reasonable, enforceable and in compliance with your statutory rights and any professional/regulatory obligations e.g. whistleblowing.
- Restrictive Covenants (Post-Employment Restrictions)
Some agreements reinforce existing restrictions or add new restrictions such as non-compete clauses, non-solicitation of clients or staff, and confidentiality obligations.
We check that these restrictions are reasonable and explain the impact that they can have on your future job opportunities.
Why You Must Get Independent Legal Advice
UK law requires you to receive independent legal advice for a settlement agreement to be valid.
A solicitor will confirm:
- You understand the legal effect of the agreement
- You are waiving your rights knowingly
- The agreement meets statutory requirements
Your employer usually contributes towards your legal fees. In most cases we provide our advice on the terms and effect of the settlement agreement within the fee contribution offered by your employer.
How O’Donnell Solicitors Help Employees
Our Employment Team provides fast, clear advice on settlement agreements, including:
- Reviewing your agreement in detail
- Explaining your legal rights in plain English
- Identifying potential Employment Tribunal claims
- Checking whether the financial offer is fair
- Negotiating improved settlement terms (where appropriate)
- Ensuring compliance with current employment law
Mutually Agreed Resignation Schemes (MARS)
A Mutually Agreed Resignation Scheme (MARS) is a voluntary exit scheme sometimes used during restructures by the NHS and local authorities. It allows employees to:
- Voluntarily apply to leave their job
- Receive a severance payment
- Exit employment under agreed settlement terms
Even though participation is voluntary, employees still sign a legally binding settlement agreement, so independent advice is essential.
We have extensive experience advising employees of multiple local authorities and NHS trusts on their MARS settlement agreements. We are experienced in acting for employees at all levels, including senior executives and long-serving staff, and have received multiple 5* Trustpilot reviews, including:
‘I had a really positive experience with O’Donnell Solicitors while going through my MARS application. My main contact was Kenneth Lees, and he was absolutely brilliant throughout the entire process. He was clear, supportive, and always happy to explain things in a way that was easy to understand, which made what could have been a stressful process feel much more manageable. His professionalism and attention to detail gave me real confidence every step of the way. I would highly recommend O’Donnell Solicitors, and especially Kenneth Lees, to anyone needing support with a MARS application’
‘From start to finish everything was explained in an simplified way, as there is an awful lot of jargon. My advisor was very patient and understanding. Taking time to answer numerous questions that I asked. I think having Zoom calls is a great Idea. So you aren’t pressured into getting to their premises but also better than just receiving letter through the post. I was extremely pleased with my service. Thank you’
‘I needed some advice following a MARS offer. The Solicitor contacted me very quickly in response to my initial contact. He was extremely helpful and kept me informed throughout the whole process. The face to face was arranged over a Microsoft Teams call due to the distance between the office and where I live. I would highly recommend them’
Frequently Asked Questions About Settlement Agreements
Do I need a solicitor for a settlement agreement?
Yes. A settlement agreement is only legally valid in the UK if you receive independent legal advice from a qualified solicitor.
Do I Have to Accept a Settlement Agreement?
No. You are not required to sign. If you refuse, your employer may continue with redundancy or disciplinary action, and you may retain the right to bring an Employment Tribunal claim but the settlement offer may be renegotiated or withdrawn. Many agreements are open to negotiation.
Are settlement agreements usually negotiable?
Yes. Settlement agreements are often negotiable, particularly in relation to compensation, notice pay, references, and restrictive covenants. Many employees improve their initial offer after legal review.
How much tax will I pay on a settlement agreement?
The first £30,000 of a termination payment is often tax-free, but salary, notice pay, and holiday pay are usually subject to tax and National Insurance.
How quickly can a settlement agreement be completed?
Often within a few days, depending on complexity and negotiation.
Can my employer withdraw a settlement agreement?
Yes. A settlement agreement offer can usually be withdrawn at any time before it is signed.
What happens if I refuse a settlement agreement?
If you refuse, your employer may proceed with dismissal, redundancy, or disciplinary action. You do not have to accept the agreement, and in some cases the offer may be renegotiated or withdrawn.
Are settlement agreements fair?
Settlement agreements are not inherently fair or unfair; their value depends on the legal and factual circumstances of the employment relationship. In many cases, the first offer reflects an employer’s desire to resolve matters quickly rather than the maximum possible settlement value.
Settlement Agreement Advice – Speak to a Solicitor
If you have been offered a settlement agreement, you must get legal advice before signing. We can review your settlement agreement and explain:
- Whether the financial offer is fair
- Whether you may be able to negotiate more
- The legal risks of signing
Our specialist settlement agreement solicitors provide fast, specialist advice on settlement agreements and negotiated exits across the country. Our work is typically covered by employer legal fee contributions. Please email Kenneth.Lees@odonnellsolicitors.co.uk or telephone 01457 761 320 and a member of the team will contact you for a free, no obligation discussion.
Related Employment Law Topics
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