Insights / Employment

Offered a settlement agreement? Read this before you sign anything.

Santosh Pandey · Solicitor of England & Wales · Updated July 2026 · 6 min read

A settlement agreement usually arrives at a bad moment: a restructure, a dispute, a conversation that started with "we'd like to discuss your exit." You are handed a long document, a deadline of a week or two, and a line saying your employer will contribute to your legal fees. Here is what is actually going on, in plain English.

What a settlement agreement really is

It is a contract in which you give up the right to bring employment claims, unfair dismissal, discrimination, unpaid wages, and usually everything else the drafter could think of, in exchange for a package: typically a termination payment, your notice, accrued holiday, and sometimes an agreed reference. Once validly signed, the tribunal door closes on the claims you waived. That is the entire point of the document, and it is why the law builds in a safeguard.

Why your employer pays for your solicitor

A settlement agreement is not legally binding unless you have received advice from an independent adviser, usually a solicitor, on its terms and effect. Your employer needs that certificate as much as you need the advice: without it, their agreement is not worth the paper. So it is standard practice for the employer to contribute to your legal fees, and in years of practice most advisers report only a handful of agreements that came without a contribution at all.

Because this practice charges no VAT, an employer's contribution stretches roughly 20% further here than at a VAT-registered firm, which usually means the advice costs you nothing at all.

What a fair contribution looks like in 2026

Typical employer contributions run £350–£500 plus VAT. But that figure is under pressure: commentary going into 2026 puts £650–£800 plus VAT as the realistic cost of the two hours a properly advised agreement takes, and the Employment Appeal Tribunal has itself observed that a £500 contribution is enough to explain the terms of an agreement, but "wholly unrealistic" for advising on whether the underlying claims make the offer a good one. If your situation involves potential claims worth advising on, a request to increase the contribution is normal, and it is made to your employer, not to you.

The five things actually worth checking

The money, broken down. Which parts are contractual (notice, holiday, taxed as normal) and which are compensation for loss of employment, where the first £30,000 is generally tax-free. Mislabelled payments are the most common expensive drafting error.
The waiver list. You are usually asked to waive everything, including claims you have never heard of. What matters is whether anything on that list is live on your facts, that is the heart of the advice.
The reference. An agreed reference attached to the agreement is contractually enforceable. A vague promise of one is not. Get the wording in the schedule.
Restrictive covenants. Some agreements quietly restate or extend post-termination restrictions. If you are moving to a competitor, this clause matters more than the money.
Confidentiality, both ways. Check whether the employer is bound too, and what you are permitted to say about why you left.

Should you negotiate?

Sometimes. The first offer is an opening position more often than employees assume, particularly where the agreement is being used instead of a fair process the employer would rather not run. But negotiation has a cost in time, goodwill and certainty, and part of honest advice is telling you when the offer is already at the top of the realistic range. What you should never do is negotiate by instinct before knowing what your claims are worth: that is bargaining without knowing what you hold.

How fast this can be done

Entirely remotely, and same-day where the deadline demands it: agreement reviewed, advice by video call, the adviser's certificate signed and returned to your employer's solicitors. Deadlines in the covering letter are usually softer than they look, but do not test that by ignoring the document for a week.

Been handed an agreement? Send it through the settlement agreements page with your deadline. In a standard employer-funded matter, the advice costs you nothing.

This guide is general information about settlement agreements in England & Wales, not advice on your document or your facts. It is preliminary guidance only; no solicitor–client relationship arises until an engagement is confirmed in writing.