One of the common reasons employees are offered settlement agreements is because of a workplace dispute involving discrimination.

UK employment law recognises several types of discrimination. These include discrimination based on age, sex, sexual orientation, race, religion or belief, and disability. Where a dispute arises, it is common for employers to seek to resolve discrimination complaints by entering into a settlement agreement with the employee.

Employers often choose this route because discrimination claims carry a stigma. Employment Tribunal hearings are public, and employers may wish to avoid reputational damage. Settlement agreements allow disputes to be resolved privately and at an earlier stage.

When Does a Discrimination Claim Arise?

A discrimination claim arises when an employee has been treated less favourably because of a protected characteristic. These include the following:

  • Age: Being treated unfairly because of how old you are, whether you are young or older.
  • Disability: Unfair treatment because of a physical or mental condition that has a long-term impact on your ability to carry out normal day-to-day activities.
  • Gender reassignment: Discrimination because someone is transitioning, has transitioned, or is proposing to transition from one gender to another.
  • Marriage and civil partnership: Being treated unfairly because you are married or in a civil partnership.
  • Pregnancy and maternity: Unfavourable treatment because you are pregnant, on maternity leave, or have recently returned to work after having a baby.
  • Race: Discrimination based on colour, nationality, ethnic background, or national origins.
  • Religion or belief: Unfair treatment because of your religious beliefs, lack of religious belief, or philosophical beliefs.
  • Sex: Being treated unfairly because you are a man or a woman.
  • Sexual orientation: Discrimination because you are gay, lesbian, bisexual, heterosexual, or perceived to be one of these.

In most cases, a claim must be brought within three months of the act or omission being complained about. While the Employment Rights Act 2025 has approved an extension of the time limit to six months for most employment claims, this change is not expected to come into force until October 2026. Until then, the three-month time limit continues to apply.

Before issuing a tribunal claim, employees usually raise a formal grievance and contact ACAS to begin early conciliation.

Both the grievance process and ACAS conciliation allow the employer to engage with the employee. These stages often lead to discussions about settlement and the possible terms of a settlement agreement.

Why Discrimination Claims Often Settle

Discrimination claims can result in high levels of compensation if they succeed at the Tribunal.

Unlike unfair dismissal claims, discrimination claims are not capped. This means compensation for loss of earnings can be unlimited. In addition to financial loss, employees may also recover compensation for injury to feelings.

Payments made for injury to feelings can sometimes be paid without tax, depending on how they are structured and what they relate to. In discrimination settlement agreements, tax treatment is a nuanced area and can differ where the payment is connected with the termination of employment. For this reason, it is important to get specific tax advice on how injury to feelings compensation is described and allocated in your settlement agreement.

Waiving Discrimination Claims in a Settlement Agreement

A settlement agreement will include a detailed list of legal claims that the employee agrees to waive in return for the settlement payment.

This list usually includes a wide range of discrimination claims under UK employment law. By signing the agreement, the employee gives up the right to pursue a discrimination claim in the Employment Tribunal.

The agreement will also usually state that if the employee later brings a discrimination claim, they must repay all sums received under the settlement agreement. This acts as a strong deterrent to bringing a claim after signing.

Important Legal Protections for Employees

Although employers may offer settlement agreements in discrimination cases, they must still follow proper legal processes.

For example, settlement agreements are often discussed during protected conversations. However, these conversations may lose their protected status if a discrimination claim already exists and the discussion supports or strengthens that claim.

This means employers must be careful about how and when settlement discussions take place in discrimination cases.

Confidentiality in Discrimination Settlement Agreements

A key benefit for employers is confidentiality in discrimination settlement agreements.

Employees who enter into settlement agreements are usually required to keep the details of the discrimination dispute confidential. This includes the circumstances of the complaint and the terms of the settlement.

Confidentiality clauses prevent the dispute from being discussed publicly after employment ends. This provides certainty and privacy for both parties moving forward.

Get Advice Before You Sign

If you believe discrimination may be a factor in your situation, it’s important to take legal advice before signing a settlement agreement. Our specialist employment solicitors can explain your rights, assess whether the offer is fair, and help you decide whether negotiation is appropriate. Getting clear advice early can protect your position and ensure you do not give up valuable rights unnecessarily.

FAQs

Can I bring a discrimination claim if I have already accepted a settlement offer in principle?

Yes, you can still bring a discrimination claim until a settlement agreement has been formally signed and legally certified.

Agreeing terms “in principle” or verbally does not prevent you from issuing a claim in the Employment Tribunal. Your legal rights are only waived once the settlement agreement is signed by you, your employer and your legal adviser. This means there is still scope to reconsider the offer or renegotiate terms if new information comes to light. Once the agreement is signed, however, discrimination claims covered by the agreement are usually waived.

Does discrimination compensation have to be paid in one lump sum?

No, compensation for discrimination does not have to be paid as a single lump sum and can be structured in different ways.
Some settlement agreements provide staged payments or separate payments for different elements, such as loss of earnings and injury to feelings. How payments are structured can affect tax treatment and financial planning. For example, injury to feelings compensation may be tax-free if properly categorised. Our employment solicitors can help ensure the payment structure reflects the nature of the discrimination claim and protects you financially.

Can my employer deny discrimination while still offering a settlement agreement?

Yes, employers can deny discrimination allegations while still offering a settlement agreement to resolve the dispute.
Settlement agreements often include wording stating that the employer does not admit liability. This does not mean your claim lacks merit. Instead, it reflects the employer’s desire to manage legal and reputational risk without going to tribunal. Many strong discrimination claims settle on this basis. The focus of the agreement is on resolving the dispute, not on deciding who is legally “at fault.”