A settlement agreement is a legally binding contract used by employers to set out agreed terms and conditions to end an employment relationship or resolve a dispute. The employee will usually be offered payment in return for completing a settlement agreement and giving up their rights to bring about a claim against the employer.

Can you negotiate a settlement agreement?


Employees don’t have to agree to a settlement agreement, they have the right to negotiate the terms.

Whilst some employees may be looking to maximise the financial compensation awarded to them, others may want to focus on minimising any restrictions (such as restrictive covenants) that follow from the termination of the employment relationship.

Below we highlight the steps involved in successfully negotiating a settlement agreement:

Instruct a specialist solicitor

Specialist settlement agreement solicitors, such as Thompsons, help employees better understand the practical implications of the terms on offer within these agreements, advising employees on any potential risks, pitfalls and potential complexities.

It is also a legal requirement to seek independent legal advice before signing a settlement agreement, of which the employer will almost always offer a financial contribution to cover the cost.

Thompsons Solicitors have a dedicated team of solicitors who deal solely with advising and supporting people through the agreement process.

We have extensive experience with various industries; we use this experience to secure the best agreement terms possible and to suit our client’s needs.

We pride ourselves on our efficient and fast-paced service, finalising agreements with even the most urgent deadlines.

Avoid handing in your resignation

If you’re involved in a dispute with your employer, to avoid weakening your negotiating position, it’s advisable not to resign - at least until you have sought legal advice.

Forced resignations resulting from an employer’s conduct are termed constructive dismissal claims. If a resignation is submitted, depending on the strength of any such claim, employees may struggle to achieve a good settlement. If, however, an employee remains in employment, the employer will have to pay a settlement in order to end the employment relationship.

Consider what your employer wants

It is always worth considering what the employer wants from the negotiations. They will usually be looking to secure a clean and easy exit, an agreed announcement to go to staff and, often, customers, and an agreement to keep the business and affairs of the company confidential.

It may be worth agreeing to the employer’s requests in return for securing your own requests and achieving the settlement you deserve. All of the above are standard terms of most settlement agreements and will assist in securing a smooth transition.

Take a realistic approach

Prior to entering into negotiations, you should consider your main goals and negotiate from there. Thompsons can talk these through with you, ensuring your main requirements are achieved in order to maximise the agreement’s benefit to you.

Employers will generally be hoping to achieve savings in terms of time and legal fees as well as avoiding the publicity of proceeding through an employment tribunal (ET) claim. You, in return, will be seeking to avoid the inevitable stress, time and uncertainty of a tribunal claim, so common ground can often be found with your employer.

Seeking a settlement that is in excess of what you’d expect to get in an employment tribunal is unlikely to bring success.

Understand the key points of a settlement agreement

As stated earlier in the article, you do not have to agree to a settlement agreement. You have the right to negotiate the terms and any negotiations are confidential, provided marked ‘without prejudice’ and cannot be used in an ET or other legal proceedings by you or your employer.

By agreeing to and signing a settlement agreement, you will no longer be able to sue your employer in a tribunal or in court for any ongoing, potential or future claims, individually or as part of a group, unless the agreement specifies otherwise. There are limited rights that should still be protected within the agreement and Thompsons’ experts will ensure that these are included before any agreement is signed.

In return for waiving most of your employment rights, you should expect to receive a financial payment as part of the settlement, which if negotiated appropriately, can be paid tax-free up to £30,000. Employees need to carefully consider the amount of financial compensation being offered and whether it reflects the seriousness of the issues being faced and the level of work.

You would also expect to receive a reference to use when applying for new jobs.

Once the agreement has been signed by both parties and a solicitor, it becomes a legally binding document which can be enforced by either party.

There are certain provisions that need to be included within a settlement to make it a legally binding document. It must be in writing, explicit about the complaint or the claims it covers and you must have independent legal advice on the document before signing.

Your independent advisor must also be named within the document, have the relevant professional indemnity insurance in place to cover the advice and the agreement must state that all of these provisions have been met and that as a result, the agreement is valid.

For more advice on signing or negotiating a settlement agreement, please click below: