Employment doesn’t always end on straightforward terms which is when an employment settlement agreements is needed. Disagreements can arise over redundancy, workplace treatment, or performance issues. In the UK, one of the most common ways to resolve these situations is through an employment settlement agreement.
But what exactly is a settlement agreement, and what should employees and employers know before signing one? This guide explains the essentials, answers common questions, and highlights practical steps for both sides.
What Is an Employment Settlement Agreement?
An agreement (previously called a compromise agreement) is a legally binding contract between an employer and employee.
- The employee agrees to waive their right to bring legal claims against the employer (for example, unfair dismissal, discrimination, or breach of contract).
- In return, the employer usually provides financial compensation and/or other benefits such as an agreed reference.
Because settlement agreements require employees to give up statutory rights, the law requires that employees receive independent legal advice before signing. Without this advice, the agreement cannot be enforced.
👉 Learn more about Employment Law Services at MAR Legal
Why Employers Use Agreements
For employers, settlement agreements are a practical tool for managing workplace exits. They can:
- Prevent litigation – resolving disputes without the cost and risk of Employment Tribunal proceedings.
- Provide certainty – bringing finality to the employment relationship.
- Protect the business – through confidentiality clauses and restrictions on working with competitors.
- Preserve reputation – ensuring disputes don’t escalate into public legal battles.
👉 Related: Redundancy and Settlement Agreements Explained
Why Employees Consider Signing Settlement Agreements
For employees, settlement agreements can provide:
- Financial security – with compensation often exceeding statutory redundancy or notice pay.
- Closure and certainty – avoiding the stress of lengthy legal action.
- Negotiated terms – such as a positive reference or agreed announcement.
- Legal protections – ensuring restrictive covenants are fair and enforceable.
While attractive, employees should always review whether the terms offered truly reflect their rights and entitlements.
Key Features Found in Settlement Agreements
Most settlement agreements will include clauses covering:
- Compensation – details of payment, how it will be taxed, and when it will be made.
- Waiver of claims – the list of claims being given up.
- Confidentiality – preventing disclosure of terms or disputes.
- Reference wording – agreed in advance to support future job applications.
- Non-disparagement – preventing negative comments from either party.
- Post-termination restrictions – such as non-compete or non-solicitation clauses.
- Legal fees contribution – most employers pay for the employee’s legal advice (commonly £350–£750 + VAT).
👉 Government guidance: GOV.UK
The Legal Advice Requirement
Settlement agreements are only valid if the employee receives independent legal advice.
- The advice must be provided by a qualified solicitor, trade union official, or certified adviser.
- Employers typically cover the cost of this advice.
- The adviser confirms in writing that they have explained the legal implications.
This safeguard ensures employees understand what they are signing and prevents exploitation.
Practical Tips for Employers
- Plan early – make sure the offer is realistic and backed by evidence (e.g., redundancy).
- Keep the tone professional – avoid presenting the agreement as a threat.
- Budget realistically – factor in compensation and legal costs.
- Be flexible – expect some negotiation on terms.
Practical Tips for Employees on Settlement Agreements
- Don’t feel pressured – you’re entitled to time to consider the agreement (usually at least 10 days).
- Check your entitlements – ensure payments are fair compared to redundancy pay or potential claims.
- Consider the future – negotiate references and restrictions.
- Get expert advice – a solicitor can help you improve the terms.
Need advice now? Contact MAR Legal about Settlement Agreements
FAQs About Employment Settlement Agreements
1. Is a settlement agreement the same as redundancy?
No. Redundancy is a form of dismissal. A settlement agreement is a legal contract that may be offered during redundancy to resolve potential disputes.
2. Do I have to accept a settlement agreement?
No. Employees are not obliged to sign. If you don’t, you keep your right to bring claims against your employer.
3. How much money should I expect in a settlement agreement?
There is no set amount. Compensation depends on your circumstances, including your salary, length of service, and potential claims. A solicitor can help assess whether the offer is fair.
4. How long does the process take?
It can be completed in a few days, but negotiation sometimes extends the process by weeks.
5. What happens if I sign without legal advice?
The agreement will not be legally binding unless you’ve received certified independent legal advice.
How MAR Legal Can Help With Settlement Agreements
At MAR Legal, we support both employees and employers in negotiating and drafting settlement agreements.
- For employees: We ensure you fully understand the terms, negotiate for fair compensation, and protect your future career.
- For employers: We draft clear, enforceable agreements that protect your business interests while ensuring compliance.
With offices in the UK and UAE, our team provides practical, approachable, and cost-effective advice tailored to your situation.
Speak to us today: Book a Consultation with MAR Legal
MAR Legal can help with Settlement Agreements
Settlement agreements can be complex, but with the right advice, they provide a valuable way to move forward. For employers, they offer certainty and protection. For employees, they can deliver fair compensation and closure.
Whether you’re being offered an agreement or need to prepare one, getting expert legal advice ensures the outcome works for you.