Settlement agreements, explained from the employee's side

Updated September 2026

A settlement agreement is a contract: money, a reference, maybe garden leave, in exchange for you not bringing claims. It is optional. It is not a dismissal letter, and it is not valid as a waiver of statutory claims unless an independent adviser signs it off.

What it actually is

Employers use them when they want a clean exit: a redundancy they are unsure about, a performance process they would rather not finish, or a dispute they do not want in a tribunal. You can say no. You can mark up the draft. You can walk away and claim instead. “This is standard” is not a legal argument.

Without the statutory formalities, a promise that you “won't sue” often does not stick for things like unfair dismissal or discrimination. That is why the document is long, and why they keep asking you to see a solicitor.

Why they pay for a solicitor

Section 203 of the Employment Rights Act 1996 is the usual reason. For the waiver of certain statutory claims to work, you must receive independent legal advice on the terms and effect of the agreement, from an insured adviser who signs a certificate. The employer commonly contributes a fixed fee toward that advice. The solicitor acts for you, not for them, even if their finance team pays the invoice.

Use that hour. The useful questions are: which claims am I waiving, is the money on top of notice and holiday already owed, what does the reference actually say, and what happens if they pay late.

What you are giving up

Most drafts waive “all claims,” known and unknown, arising from the employment and its termination. That can include unfair dismissal, discrimination, whistleblowing, and wages claims you have not finished adding up. Personal-injury and accrued pension rights are often carved out. Read the carve-outs. If unpaid commission or a bonus is in dispute, name it in the agreement or keep it out of the waiver.

Notice pay and holiday already earned are usually debts, not gifts. A good draft pays them as well as the ex gratia sum. If the number on page one is just your notice recycled, you are not being offered a settlement. You are being offered your own money back.

Settlement versus COT3

A COT3 is the Acas version of a settlement, reached through a conciliator. It can also waive claims. It is a different document with different formalities. If you are already in early conciliation, you may be offered a COT3 instead of, or as well as, a private settlement agreement. Do not sign both without knowing which one is doing the work.

The clock still runs

Talks do not pause limitation. People miss tribunal windows because “we were negotiating.” If the deadline is inside the next month, start Acas while the drafts go back and forth. You can settle after conciliation has started. You cannot resurrect a deadline after it has died.

If you have just been walked out, read the first-48-hours checklist before you open the PDF they emailed you in the taxi.

This is general information, not legal advice. The independent adviser you see about a draft is the person who can tell you whether this particular document is safe to sign.