A settlement agreement is a legally binding contract that ends your employment and waives your right to bring most employment tribunal claims. Your employer needs you to sign it — which gives you more negotiating power than you might think. Here are seven practical tips to help you get a better deal.
1. Never Sign Without Taking Legal Advice
A settlement agreement is only legally valid if you have received independent legal advice from a qualified solicitor. Your employer is required to contribute to the cost of that advice — typically £250 to £500 plus VAT. Use this opportunity to get a proper review of the terms, not just a rubber stamp.
2. The First Offer Is Rarely the Final Offer
Employers typically open with a conservative figure. They expect negotiation. If the offer feels low, it almost certainly is. A solicitor experienced in settlement agreements will know what comparable cases have settled for and can advise you on a realistic counter-offer.
3. Understand What You Are Giving Up
A settlement agreement typically waives your right to claim unfair dismissal, discrimination, breach of contract, and unpaid wages. Before agreeing to waive these rights, you need to understand what they are worth. If you have a strong unfair dismissal or discrimination claim, your settlement figure should reflect that.
4. Check the Tax Position
The first £30,000 of a genuine compensation payment is usually tax-free. However, payments in lieu of notice (PILON), holiday pay, and bonuses are taxable. Make sure the agreement clearly distinguishes between taxable and non-taxable elements — and that the figures are structured to maximise your tax-free entitlement.
5. Negotiate the Reference
The reference wording in a settlement agreement matters enormously. A neutral or positive agreed reference can make a significant difference to your next job application. Negotiate the exact wording — do not accept vague commitments to provide a 'satisfactory' reference.
6. Consider Restrictive Covenants
Many settlement agreements include post-termination restrictions preventing you from working for competitors or contacting clients. These can be negotiated — particularly if the restrictions are wider than those in your original contract, or if you are receiving a modest settlement. A solicitor can advise on whether the restrictions are enforceable.
7. Do Not Let the Deadline Pressure You
Employers often impose a 7 or 10-day deadline to create urgency. In practice, most employers will extend this if you are engaging constructively. Do not let artificial time pressure push you into accepting terms you are not happy with.
PDA Law provides fixed-fee settlement agreement advice. We will review your agreement, advise on the terms, and negotiate on your behalf where appropriate — all for a transparent fixed fee.