When workplace disputes turn sour, the uncertainty can feel overwhelming. Jobs, reputations and livelihoods may hang in the balance. That’s where a settlement agreement can be valuable – offering certainty, closure and a legally binding resolution. 

But while they offer peace of mind, they also come with risks if not handled correctly. The good news? With professional advice, the pitfalls can be avoided. 

This article explores what a settlement agreement is, the advantages of a settlement agreement and potential settlement agreement risks. You’ll also learn why legal advice is essential to protect your rights. 

What Is a Settlement Agreement? 

A settlement agreement is a legally binding contract between employer and employee. In short, the employer agrees to give up certain rights (often the right to bring future claims), in return for compensation or other agreed terms. 

  • Typically used when ending employment on agreed terms
  • Prevents costly tribunal claims
  • Must be reviewed by an independent solicitor

According to the UK government’s Advisory, Conciliation and Arbitration Service (ACAS), around 37,000 employment tribunal claims were lodged in 2023. Many could have been avoided with a settlement agreement in place.

Discover more about what a settlement agreement is here.

What Are the Advantages of a Settlement Agreement?

There are many advantages of a settlement agreement when compared with drawn-out legal disputes.

  • Certainty – Both sides know exactly where they stand.
  • Speed – Resolves matters quickly without months of hearings.
  • Confidentiality – Keeps sensitive issues out of the public eye.
  • Financial Security – Employees receive a guaranteed payout.
  • Reputation Protection – Employers avoid damaging headlines.

In many cases, employers also agree to provide a reference, helping employees move forward confidently.

What Are the Settlement Agreement Risks?

No agreement is without drawbacks. It’s important to understand settlement agreement risks before signing.

  • Waiver of Rights – You give up the right to pursue claims later.
  • Pressure to Sign Quickly – Some employers may push unfair terms.
  • Compensation Disputes – Payments may not reflect what you’re owed.
  • Complex Terms – Hidden clauses can limit future opportunities.

A settlement agreement must be reviewed by a solicitor to be valid under UK law. Without legal advice, employees risk signing away important rights unknowingly.

what are the advantages of a settlement agreement

What is the Penalty For Breach of a Settlement Agreement?

One of the most common concerns is the penalty for breach of a settlement agreement. 

If either party fails to honour the agreed terms, the other side can enforce the contract in court. This may lead to:

  • Repayment of settlement money
  • Court-ordered damages
  • Injunctions to stop further breaches

Employers often include strict confidentiality and non-disparagement clauses. Breaching these could mean losing the compensation entirely.

Discover more about what happens when a settlement agreement is breached here.

Learn the answers to more common questions asked regarding settlement agreements here.

How Much Can You Get in a Settlement Agreement?

The value of a settlement agreement varies, but most people want to know what’s “normal.”

According to CIPD data, the average UK settlement ranges from three to six months’ gross salary. But many factors influence the figure:

  • Length of service – Long-serving employees may receive more.
  • Strength of potential claims – If a tribunal claim looks strong, payouts are higher.
  • Employer reputation – Big organisations may offer more to avoid headlines.
  • Negotiation skills – The expertise of a solicitor can significantly increase the offer.

It’s not just about money, either. Some agreements include:

  • Extended paid notice periods
  • Outplacement support
  • Agreed references
  • Continuation of benefits for a period

A solicitor’s role is to ensure you don’t settle for less than you deserve. Without negotiation, many employees walk away with far less than they could have achieved.

Is a Settlement Agreement Always the Best Option?

A settlement agreement is not always the best option. Some situations may be better resolved through negotiation or tribunal. However, for most disputes, the benefits outweigh the risks when handled properly.

A few scenarios where settlement agreements work well:

  • Redundancies 
  • Alleged misconduct or performance issues
  • Long-term sickness absence
  • Workplace breakdowns where trust is lost

Learn more about what an employment tribunal is here.

Do I Need a Solicitor for a Settlement Agreement?

Yes – without question, you need a solicitor for a settlement agreement. By law, a settlement agreement is not valid unless the employee has received advice from a qualified solicitor.

Here’s why professional advice matters:

  • Protection of Rights – Ensures you don’t give up claims unfairly.
  • Fair Compensation – Checks that the financial offer reflects your entitlements.
  • Clear Terms – Explains any complex clauses in plain English.
  • Negotiation Power – Solicitors can push for better terms.

In fact, many employees who seek legal support secure a higher payout than initially offered. A solicitor’s role is not to obstruct, but to safeguard your future.

Are Settlement Agreements Worth it in the Long Run?

For most, settlement agreements are worth it in the long run. They allow a clean break, financial reassurance and the chance to move forward without dragging disputes through court.

However, without professional advice, the risks can outweigh the rewards. The penalty for breach of a settlement agreement is real, and signing without fully understanding terms can leave you exposed.

Think of it this way: the agreement is about closure, but closure must come with confidence.

Should You Accept a Settlement Agreement?

A settlement agreement is rarely straightforward. While the advantages of a settlement agreement are clear, the settlement agreement risks can be significant. That’s why legal expertise is not optional – it’s essential.

At Settlement Agreement Advice, our specialist solicitors are here to ensure your agreement works for you, not against you. We protect your rights, negotiate fair terms and guide you through every step with care.

Ready to safeguard your future? Get started by exploring our 3-step-process and contact us today for expert guidance.