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Settlement agreement guide

A plain-English guide to what a settlement agreement is, what makes it valid, and what to check before you focus on the headline figure.

At a glance

A settlement agreement is voluntary and must meet legal conditions to be valid. The worker must get advice from a relevant independent adviser before signing.

What makes it valid

  • It must be in writing.
  • It must relate to a particular complaint or claim.
  • The worker must receive advice from a relevant independent adviser.
  • The adviser must be identified and insured.

What often causes confusion

  • The headline figure can mix together taxable and non-taxable elements.
  • Signing usually means giving up claims covered by the agreement.
  • A settlement offer is voluntary: you do not have to accept it just because it was made.
  • The agreement can be legally valid while still being a weak financial offer.

Ask for a breakdown

Separate statutory redundancy, ex gratia compensation, notice, holiday pay, wages, bonus and any benefits.

Check the wording on claims

Read carefully which tribunal or court claims are being waived and what references to confidentiality or restrictive covenants say.

Check time pressure

Do not let urgency crowd out advice. Use the adviser process properly and check the Acas Code on settlement agreements.

Tax is only one part of the decision

Some items in a leaving package are taxed like earnings, while other parts can fall under different termination-payment rules. That still does not answer whether the offer is fair overall.

Use the settlement tax checker

Useful next steps

What to check before relying on a figure Compare redundancy, settlement and final pay

Reviewed against Acas settlement agreement guidance and the Acas Code of Practice.