Receiving a settlement agreement can leave you trying to make an important decision before you have had time to take in the conversation. The employer may have named a payment figure and a deadline, but you still need to understand what the document means for your income and future work.
Our employment solicitors review the wording alongside the circumstances behind the offer. That means looking at the claims you would settle, the money already owed to you and any restrictions that could affect your next role.
What does a settlement agreement do?
A settlement agreement can resolve an employment dispute or set out agreed terms for leaving a job. To validly settle relevant statutory employment claims, it must meet legal requirements, including advice from an appropriate independent adviser and identification of the claims covered. Acas explains the main requirements.
Signing is voluntary. The important question is what the offer gives you in exchange for the rights being settled. A document headed settlement agreement is not automatically suitable simply because the employer uses it regularly.
Separate compensation from money you are already owed
Ask for a clear breakdown of the total. Salary earned before departure, notice arrangements, unused holiday and any additional compensation should be identifiable. Otherwise, an apparently generous figure can be difficult to assess.
- Check the proposed termination date against payroll and notice arrangements.
- Ask how outstanding holiday has been calculated.
- Identify any commission, bonus or expense payments still in issue.
- Check when each payment falls due and what could delay it.
- Look for conditions requiring documents, returned equipment or other steps before payment.
For example, an offer expressed as three months’ pay means little without knowing if contractual notice is included. Prepare a separate list of sums you believe are already due and ask the adviser to compare it with the agreement.
Is the settlement payment tax free?
Do not assume the entire amount can be paid without deductions. Normal earnings, holiday pay and payments relating to notice can be taxable. Certain qualifying termination payments may benefit from a tax-free threshold, but the treatment depends on the payment’s nature. The government guidance on termination payments explains the distinctions.
Ask what net payment you should expect and how the employer has categorised each element. If there is a tax indemnity, understand what it requires you to repay and in which circumstances. An employment adviser may recommend specialist tax advice for a complicated package.
Check the reference and restrictions on future work
A reference can matter as much as the compensation when you are applying elsewhere. If a reference has been negotiated, ask for the agreed wording to be attached. Consider how requests will be handled and who prospective employers should contact.
Read clauses about confidentiality, announcements, comments about the business and contact with former clients. Also check if restrictions in your existing contract continue or are being changed. Explain your next career plans to the solicitor so the review addresses the practical effect, rather than treating these clauses as standard wording.
How much time should you have to consider the offer?
Acas generally recommends at least 10 calendar days to consider the written terms and obtain advice. This is guidance about a reasonable consideration period, not an automatic expiry date for every offer. Its guidance on making an offer also explains the role of independent advice.
If you need more time, raise this promptly and explain why. Send the full document, employment contract and deadline to your adviser at the outset. Negotiating an agreement should not be assumed to protect any separate legal claim deadline.
Who pays the solicitor’s fees?
Employers often offer a contribution to independent advice, but the amount and scope need checking. Ask if it covers only advice on the document or also negotiations, revised drafts and related issues. The employer is not automatically obliged to meet every cost.
We will explain our fee and any amount payable by you before work begins. A contribution does not make the solicitor the employer’s adviser: the independent advice is given to you.
Questions to ask at your settlement review
Can I negotiate more than the payment figure?
Yes. The departure date, reference, announcement, restrictions and arrangements for equipment can be discussed as part of the proposed terms. The employer may not agree to every request, so identify your priorities early.
Should I resign before the agreement is finished?
Take advice before changing your employment position. Resignation can affect the options available and should not be treated as an administrative step simply because a draft has arrived.
What if I do not accept?
The underlying employment situation still needs addressing. Ask your solicitor to explain the realistic alternatives in your circumstances, including the process the employer may follow and any potential claims.
Arrange independent settlement agreement advice
For employment law advice on a proposed agreement, call 0330 900 0377 or email info@pembridgesolicitors.co.uk. Include the employer’s deadline and proposed legal fee contribution. You can arrange a call or visit Calderwood House, Montpellier Parade, Cheltenham GL50 1UA by appointment.
Information checked on 17 September 2026. This article provides general information; advice depends on your individual circumstances.
