Being offered a settlement agreement can feel overwhelming. This is especially true if you’re unsure what it means, whether the offer is fair or what your rights are. Many employees ask the same questions: “Do I have to sign it?” Who pays my solicitor’s fees? What legal advice do I need? Can I negotiate? What claims am I giving up?”
We will look at exactly how settlement agreements work and the legal requirements that must be met for them to be valid. We’ll consider every step in the process, your rights at each stage and how solicitors help secure a fair outcome. You’ll find guidance on key issues such as confidentiality clauses, important contractual terms and COT3 agreements. With that information, you’ll know what to do if you think the offer isn’t good enough.
1. What Is a Settlement Agreement?
A settlement agreement is a legally binding contract between you and your employer. In simple terms:
- You agree not to bring legal claims against your employer now or in the future.
- Your employer agrees to pay compensation, give a reference or provide other agreed benefits.
It is commonly used in situations such as redundancy, workplace disputes, unfair dismissal, grievances or where both sides agree that it’s best to part ways. Settlement agreements were previously known as compromise agreements.
For many employees, the offer arrives unexpectedly and with a short deadline. Understanding how the process works makes it far less stressful.
2. Do You Have to Sign a Settlement Agreement?
No, settlement agreements are voluntary. You cannot be forced to sign one, and your employer cannot threaten you with dismissal for not signing.
Some employees feel pressured because the wording often makes the offer sound final or time-sensitive. Our Settlement Agreements lawyers can explain whether the deadline is realistic and whether the offer is fair. We can determine if you might have claims that strengthen your negotiating position.
3. Is a Solicitor Required for a Settlement Agreement?
A settlement agreement is only valid if you have received independent legal advice from a qualified solicitor (or certified trade union adviser). Without this advice and certification, the agreement is not legally binding.
Your solicitor must:
- Explain the effect of the agreement
- Identify any legal claims you may already have
- Check whether the compensation reflects those claims
- Review confidentiality and non-disparagement wording
- Ensure the agreement is fair and enforceable
Employers cannot legally rely on the agreement unless you have received this advice.
Most employees are relieved to learn that their employer almost always pays for this legal advice, usually through a fixed contribution.
4. Who Pays for Settlement Agreement Solicitors and How Much?
One of the most common questions employees ask is who pays for settlement agreement solicitors and how much the process will cost. The agreement normally includes a clause where your employer pays a legal fee contribution, often between £250 and £750 + VAT. Some employers offer more depending on the complexity of the agreement or the seniority of the employee.
This contribution usually covers:
- Reviewing the agreement
- Advising you on all clauses
- Confirming the agreement is legally valid
- Signing the adviser’s certificate
If you want the solicitor to negotiate improved terms, this may fall outside the standard fee, but we can tell you clearly before any additional costs arise.
5. The Legal Requirements for a Valid Settlement Agreement
Under UK employment law, a settlement agreement, formerly known as a compromise agreement, must meet strict criteria to be enforceable. It must:
- Be in writing
- Relate to specific complaints or proceedings
- Confirm that the employee received independent legal advice
- Identify the adviser and state that they are insured
- Be signed by both the employer and the employee
- Include an adviser’s certificate
If any of these are missing, the agreement may not be enforceable.
6. What Does a Solicitor Do When Reviewing a Settlement Agreement?
Your solicitor does far more than simply sign the certificate. They assess your legal claims.
This includes unfair dismissal, discrimination, redundancy rights, notice pay, breach of contract, or unpaid bonuses.
If the employer has acted improperly (for example, through a flawed disciplinary or redundancy procedure), you may have leverage to negotiate a better deal.
Check that the compensation is reasonable
Your solicitor compares the offer with what a tribunal might award.
Explain every clause in plain English
This includes confidentiality agreements, non-disparagement wording, payment dates, tax treatment, references, and post-termination restrictions.
Identify any unfair or risky wording
Some clauses are written in ways that could affect your future employment.
Help you negotiate improved terms if needed
Negotiation is common, especially where the employee may have potential claims.
7. The Usual Procedure: How a Settlement Agreement Is Offered and Agreed
The typical process is as follows:
Step 1: Employer makes an offer
This often happens during a protected conversation or a without prejudice meeting.
Step 2: You receive the draft agreement
This sets out the compensation, termination date, clauses, and conditions.
Step 3: You get independent legal advice
Some employees choose to meet their solicitor in person, but many complete the process over the phone and email.
Step 4: Negotiation (optional)
You may negotiate:
- Higher compensation
- Amendments to confidentiality wording
- Better reference wording
- Removal or reduction of restrictive covenants
- Correct payment terms
Step 5: Signing
Your employer usually signs first, but either order is acceptable. Once both parties sign, the agreement is binding.
Step 6: Payment
Employers typically pay within 14 to 28 days, depending on the agreement.
8. Understanding Confidentiality and Confidential Discussions
Confidentiality clauses are standard in settlement agreements. They usually mean you cannot discuss:
- The settlement amount
- The events leading up to the agreement
- The reasons for your departure
- The existence of the agreement
However, you can normally talk to:
- Your solicitor
- Immediate family
- Financial advisers
- HMRC
- Regulatory bodies
Non-disparagement wording also prevents either party from making negative or damaging comments about the other.
Settlement agreements also arise from without prejudice conversations. These are discussions that cannot be shared or used as evidence until the agreement is final.
9. Key Clauses You Need to Understand
Important clauses usually include:
- Compensation and payment dates: Your solicitor checks for clarity and enforceability.
- Waiver of claims: This clause confirms the legal claims you are agreeing not to bring.
- Tax treatment: Up to £30,000 of compensation may be tax-free, depending on the type of payment.
- Reference wording: Employees often negotiate a fair, neutral reference.
- Confidentiality and NDAs: Essential to protect reputation and future job prospects.
- Restrictive covenants: These may apply after your employment ends, sometimes limiting future job options.
10. Settlement Agreements and ACAS: Understanding COT3 Agreements
Settlement agreements and COT3 agreements are both used to settle employment disputes, but they work differently.
What is a COT3 Agreement?
A COT3 agreement is a legally binding agreement arranged through ACAS. It is often used when a claim is already with ACAS or heading to an employment tribunal.
Key differences:
| Settlement Agreement | COT3 Agreement |
| Drafted by the employer or their solicitor | Arranged via an ACAS conciliator |
| Requires independent legal advice | Legal advice is OPTIONAL but recommended |
| Covers wider obligations like confidentiality | Focuses mainly on settling claims |
| The employer usually pays your solicitor | You may need to pay your own fees |
Employees sometimes wonder whether a COT3 is better. The answer depends on the situation. If you’re not sure, one of our settlement agreement solicitors can advise.
11. What Happens if I Refuse to Sign a Settlement Agreement?
If you don’t sign your settlement agreement, your rights remain the same as before the offer. You keep all potential legal claims.
Possible outcomes include:
- Continued internal process (disciplinary, redundancy, grievance)
- Negotiation of a better offer
- The employer withdrawing the offer
- Proceeding to ACAS or tribunal if needed
12. Your Rights Before Signing
You have the right to:
- Independent legal advice
- Enough time to consider the offer (ACAS recommends 10 days)
- Ask questions and request changes
- Not be pressured
- Walk away if the offer is not fair
Employees with potential claims, such as discrimination, unfair dismissal, or gender pay disputes, often have room to negotiate better terms.
13. Your Rights After Signing
Once signed, the agreement is binding. You gain:
- Certainty of compensation
- Agreed termination terms
- A secure reference
- Closure and protection from future dispute escalation
Your employer gains assurance that you won’t bring claims.
14. When to Challenge a Settlement Agreement Offer
You should question or negotiate the offer if:
- The payment seems too low
- The confidentiality wording is too strict
- Restrictive covenants are unreasonable
- The employer’s process was flawed
- The reason for termination is incorrect
- Clauses seem one-sided or unclear
Here at Settlement Agreements, we can identify weaknesses in the employer’s position and use them to secure improvements.
15. How Long Does a Settlement Agreement Take?
Most settlement agreements are completed within two to four weeks, though the exact timeline depends on the complexity of your situation and how quickly both parties move through the process.
The typical timeline:
- Week 1: Your employer presents the draft agreement. ACAS recommends at least 10 calendar days to consider the offer and seek legal advice.
- Week 1-2: You consult a solicitor who reviews the agreement, assesses your potential claims and advises whether the offer is fair.
- Week 2-3: Negotiation takes place if needed, which can add one to two weeks depending on responsiveness and complexity.
- Week 3-4: Both parties sign the finalised agreement.
- Week 4-6: Payment is made, usually within 14 to 28 days of signing.
In straightforward cases where the offer is fair, agreements can be completed in as little as one week. However, taking time to understand your rights properly is more important than speed.
If your employer is pressuring you to sign quickly, this is a red flag. Our settlement agreement solicitors can review urgent offers within 24 hours and advise whether the deadline is reasonable.
16. Protect Yourself Before You Sign
A settlement agreement can be a fair and practical way to end employment, but only if you fully understand your rights and the legal protections you’re entitled to. Clear legal advice ensures the agreement is binding, the compensation is reasonable and the terms won’t harm your future career.
If you’re unsure about any part of the agreement, or if you think the offer doesn’t reflect your situation, our settlement agreement solicitors can help you negotiate better terms and protect your interests.
We will offer tailored guidance, explain every clause, check whether the offer is fair and make sure your rights are fully protected.
