Understanding Settlement Agreements: Why Legal Advice is More Than Just a Box-Ticking Exercise

In the world of employment law, few documents carry as much weight, or finality, as a Settlement Agreement. For employees, it’s often presented during a difficult or emotional time: perhaps after a redundancy consultation, a workplace dispute, or the breakdown of an employment relationship. For employers, it offers a structured, legally binding way to resolve matters cleanly and confidentially.

But while settlement agreements can bring much needed closure for both sides, signing one is not a step to take lightly. This is where legal advice, not just a signature, is essential.

We regularly advise both employees and employers across the UK on the settlement agreement process. Here’s what you need to know about how these agreements work, and why seeing a solicitor isn’t just a legal requirement; it’s key to protecting your rights.

A settlement agreement (formerly known as a “compromise agreement”) is a legally binding contract between an employee and employer, usually entered into at the end of employment or to resolve a dispute. In simple terms, the employee agrees to waive their right to bring legal claims such as unfair dismissal or discrimination in exchange for a financial settlement or other agreed terms.

Once signed, both sides are bound by the terms. It’s a full and final settlement. That means no going back, no future tribunal claim, and no second chance to negotiate.

That’s why getting proper legal advice is not only sensible, it’s also legally required for the agreement to be valid.

When are Settlement Agreements Used?

Settlement agreements can be used in a variety of workplace situations, including:

Redundancy situations (particularly for enhanced exit packages)
Disciplinary proceedings where both sides want to avoid a prolonged process
Performance or capability concerns
Workplace grievances, bullying or harassment complaints
Disputes over bonuses, pay, or notice
Simply where both parties agree it’s time to part company

Sometimes, the agreement is offered during formal procedures; other times, it’s discussed informally and confidentially under what’s known as a “protected conversation.”

The Role of the Solicitor: More Than Just Signing Off

One of the most common misconceptions about settlement agreements is that the solicitor’s job is just to explain the terms and sign a certificate. In reality, a solicitor’s role goes far deeper, and can significantly affect the outcome for the employee.

Here’s how we help our clients:

Understanding What You’re Signing – We explain the agreement clearly, what claims you’re giving up, what restrictions you’re agreeing to, and what obligations you’ll have (such as confidentiality or non-disparagement clauses).
Assessing Whether the Offer Is Fair – We review the financial package, including pay in lieu of notice, accrued holiday, redundancy pay, bonuses, and any ex gratia (additional) sums. If the offer is below what you could expect under the law or your contract, we’ll tell you and help negotiate better terms where appropriate.
Protecting Your Future – Settlement agreements often contain restrictive covenants that can limit your ability to work for competitors or start your own business. We assess whether these are enforceable and fair and can negotiate changes if needed.
Clarifying Tax and Payments – We help ensure that the financial package is structured tax-efficiently and that payments are properly categorised, whether it’s tax-free compensation, contractual notice pay, or statutory redundancy.
Negotiating Terms – In many cases, we’re able to secure improved financial terms, better reference wording, or clarification of post-employment restrictions. Employers expect some negotiation, and it’s often easier to have that handled through your solicitor.

Who Pays for the Advice?

In most cases, your employer will contribute towards your legal fees, because independent legal advice is a requirement for the agreement to be valid. Typically, the contribution covers the full cost, meaning you receive expert legal advice without being out of pocket.

Even where more complex negotiations are needed, we’ll always be upfront about any additional fees and keep you fully informed.

Confidential, Clear and Supportive Legal Advice

We understand that receiving a settlement agreement can feel daunting. You may feel under pressure to sign quickly, or unsure whether the offer is fair. We offer friendly, straightforward advice and guide you through the process step-by-step.

We’ll always take the time to understand your situation, explain your rights in plain English, and help you make a confident, informed decision. Whether your priority is maximising your exit package, negotiating your restrictions, or simply moving on with dignity, we are here to support you.

If you’ve been offered a settlement agreement or simply want to understand your options, contact our employment solicitors who are here to help.