What Is a Settlement Agreement?
A settlement agreement (formerly known as a compromise agreement) is a legally binding contract between an employer and an employee. By signing it, the employee agrees to give up specified employment law rights and claims in exchange for a financial payment and, often, other benefits such as an agreed reference, payment in lieu of notice, or assistance with outplacement. Settlement agreements are used in a wide range of circumstances including redundancy, dismissal, resignation in constructive dismissal situations, performance or conduct exits, TUPE situations, and ill health or long-term absence.
You should not sign any settlement agreement until you have spoken to a solicitor. Once a valid settlement agreement is signed, your employment law claims are waived permanently. If you later discover the offer was significantly below what you could have claimed, you have no recourse. You will not lose your job simply by taking time to seek advice.
Why You Need a Solicitor — the Legal Requirement
Under section 203 of the Employment Rights Act 1996, a settlement agreement is only legally binding if the employee has received independent legal advice from a qualified lawyer who is covered by professional indemnity insurance. Without independent legal advice, the agreement cannot waive your employment tribunal rights. This is why employers almost always agree to pay a contribution towards the cost of your legal advice — it is in their interests to ensure the agreement is valid. As qualified solicitors regulated by the Solicitors Regulation Authority, we are authorised to provide the independent legal advice that makes a settlement agreement legally binding and to issue the certificate of advice your employer requires.
What We Do When Advising on Your Agreement
Our advice is thorough and practical. When you instruct us we will review the full terms of the agreement including all clauses and schedules; advise you on what claims and rights you are being asked to waive — including any you may not be aware of; advise you on whether the financial offer is reasonable and proportionate to the value of the claims being settled; identify any unusual, onerous, or potentially unfair terms; advise you on the tax treatment of the settlement payment; advise on post-termination restrictions such as non-compete and non-solicitation clauses that may affect your future employment; and where appropriate, correspond with your employer's solicitors to negotiate amendments and improved terms.
Key Terms to Understand in Your Agreement
The Waiver Clause is the core of the agreement — it lists the specific claims you are agreeing not to bring. Unusually wide waiver clauses purporting to waive unspecified future claims may be unenforceable. Confidentiality clauses prevent you discussing the settlement terms or your departure; we will advise on their practical effect and seek to narrow unreasonably wide restrictions. Post-termination restrictions — non-compete and non-solicitation clauses — can significantly affect your ability to find new employment; overly wide restrictions are often unenforceable. Agreed references should be carefully checked. The £30,000 tax-free allowance applies to genuine compensation for loss of employment under section 401 of the Income Tax (Earnings and Pensions) Act 2003 — but not to payments for notice, holiday pay, or contractual entitlements, which remain taxable.
Can I Negotiate My Settlement Agreement?
Yes — and in many cases negotiation achieves a significantly better outcome. Employers frequently make an initial offer below what they would be prepared to pay, particularly where they are aware of legal exposure. Grounds for negotiating a higher payment or improved terms may include the strength of an unfair dismissal, constructive dismissal, or discrimination claim; long service and significant contribution to the business; failure by the employer to follow a fair procedure before making the offer; outstanding bonuses, commission, or share options not included; contractual notice entitlements not fully reflected; and restrictive covenants that are too wide and prejudicial to future employment. We will advise you honestly on the strength of your position and can conduct negotiations on your behalf.
Our Fees — Transparent and Fixed
We charge fixed fees for settlement agreement advice. You will always know exactly what you will pay before we begin work.
| Service | Fixed Fee | VAT-inclusive total |
|---|---|---|
| Settlement agreement — review, advice and certificate | £400 – £750 + VAT | £480 – £900 |
| One-hour employment law consultation and letter | £180 + VAT | £216 |
The fee within the settlement agreement range depends on the complexity of the agreement, the number of claims being waived, the value of the settlement, and whether negotiation of amendments is required. Simple, standard agreements tend to fall at the lower end; complex agreements with multiple claims, restrictive covenants, or requiring negotiation tend to fall at the higher end. Most settlement agreements are completed within 2 to 5 working days of receiving full instructions and the draft agreement. Your employer's contribution — commonly between £200 and £500 + VAT — will be applied against our fee and we will advise you at the outset of any shortfall.
Regulatory Information
Lostock Legal is authorised and regulated by the Solicitors Regulation Authority (SRA). Our SRA number is [INSERT SRA NUMBER]. All settlement agreement advice is provided by qualified solicitors holding current practising certificates, admitted to the roll of solicitors in England and Wales, working under the supervision of a senior qualified solicitor. We are covered by professional indemnity insurance as required by the SRA. VAT is charged at the current standard rate of 20% on all professional fees. Our VAT registration number is [INSERT VAT NUMBER]. If you are unhappy with our service, please contact us in the first instance — our written complaints procedure is available on request and on our website. Complaints may also be referred to the Legal Ombudsman at PO Box 6167, Slough, SL1 0EH — normally within one year of the act or omission giving rise to the complaint.