Employment Law Guide
How to negotiate a settlement agreement
Reviewed by Alex Bailey, Solicitor (qualified 2007) · Last reviewed October 2026 · England & Wales
Yes, you can negotiate a settlement agreement, and most first offers can be improved. Signing is voluntary, so your employer has to reach terms you will accept. The strongest negotiations start by working out what you are owed anyway, then use the strength of any claims you are giving up to justify a higher payment and better terms, such as an agreed reference. A solicitor normally makes the counter-offer for you, and your employer is usually asked to pay for that.
Can you negotiate a settlement agreement?
A settlement agreement is a contract. Nobody can force you to sign one. Your employer needs your signature to get certainty — no tribunal claims, confidentiality about the circumstances of your departure, and a clean exit. That need gives you bargaining power.
Employers expect negotiation. Most first offers are conservative. The question is not whether you can negotiate, but how much leverage you have and what you want to achieve.
Your leverage may be limited if you have no realistic employment tribunal claims and the offer already exceeds what you are owed. But even then, you can often improve the reference wording, the leaving date, or the scope of any restrictions. Where you do have claims — unfair dismissal, discrimination, whistleblowing, unpaid wages — the financial payment is genuinely negotiable.
Before you negotiate: three things to do first
- Do not sign or resign. Once you sign, the agreement is binding and very difficult to undo. Once you resign, you may lose claims and bargaining power. Keep your options open until you have taken advice.
- Get the offer in writing and ask for reasonable time. The Acas Code of Practice recommends at least 10 calendar days to consider a settlement agreement. If your employer is pressing for a faster decision, let your solicitor know — this may itself be relevant to the negotiations.
- Work out what you are owed regardless of the deal. Before assessing the settlement premium, calculate: notice pay (contractual or statutory, whichever is higher); accrued but untaken holiday pay; any earned but unpaid bonus or commission; statutory redundancy pay (if you are being made redundant and have at least two years' service); and any statutory maternity, paternity, adoption or sick pay owed. These amounts are yours regardless of whether you sign. Use the settlement agreement calculator to separate what you are owed from the extra you are being paid. Statutory pay cannot be signed away — it must be paid in full.
What gives you negotiating leverage
Your negotiating position depends on the strength of any claims you are giving up. The main sources of leverage are:
- Unfair dismissal — if you have two years' service (or six months from 1 January 2027), the strength of any unfair dismissal claim and the likely compensation range
- Discrimination — uncapped compensation for claims based on a protected characteristic (age, disability, sex, race, religion, sexual orientation, etc.)
- Whistleblowing — uncapped compensation if you have made a protected disclosure and suffered a detriment
- Unpaid wages, bonus or commission — contractual entitlements that are straightforward to value
- Flaws in the employer's process — a redundancy without proper consultation, a disciplinary without a fair hearing, or a performance process that was not followed correctly
- The employer's motivations — speed, confidentiality, a restructuring deadline, or avoiding the management time and reputational risk of tribunal proceedings
- Time to find comparable work — the longer it is likely to take you to find a similar role, the higher the financial loss you can demonstrate
- Length of service and seniority — longer service increases the basic award for unfair dismissal and the general weight of any claim
Important change from 1 January 2027
From 1 January 2027, the qualifying period for ordinary unfair dismissal reduces from two years to six months, and the cap on the compensatory award is removed. If your leaving date is on or after 1 January 2027, your bargaining position may be significantly stronger — the leaving date itself may be worth negotiating.
What you can negotiate (it is not just the money)
Most employees focus on the financial payment. But a settlement agreement has many moving parts, and improvements to non-financial terms can be just as valuable.
| Term | What you can ask for |
|---|---|
| Payment | The total financial figure, including how it is structured for tax purposes |
| Notice / garden leave | Whether you work your notice, are placed on garden leave, or receive a PILON |
| Leaving date | Particularly relevant if your leaving date affects your qualifying period for claims |
| Bonus and commission | Earned but unpaid bonus or commission should be paid in full; enhanced bonus is negotiable |
| Shares and options | Good-leaver treatment, accelerated vesting, or extended exercise windows |
| Pension contributions | Employer pension contributions as part of the settlement can be tax-efficient |
| Agreed reference | Wording attached as a schedule — covering written and verbal references |
| Departure announcement | The wording of any announcement to colleagues, clients or the market |
| Confidentiality | Mutual obligations — binding on the employer as well as you |
| Restrictive covenants | Non-compete, non-solicit and non-poach clauses can often be narrowed or removed |
| Benefits | Company car, phone, laptop — return date and any continued use during notice |
| Outplacement support | Career coaching or CV assistance paid for by the employer |
| Legal fee contribution | The amount the employer contributes to your legal fees |
| Payment date | When the money will be paid, and what happens if the employer is late |
| Claims waived | The scope of the waiver — ideally limited to existing known claims, not future claims |
How to make a counter-offer, step by step
- Decide your priorities and your walk-away point. You cannot negotiate everything at once. Identify the two or three things that matter most — usually the financial figure, the reference, and any restrictions.
- Build an evidence-based case. Calculate what you are owed anyway. Assess the strength and value of any claims. Identify any flaws in the employer's process. Your solicitor will help with this.
- Write a reasoned counter-offer. Mark it “Without prejudice and subject to contract”. State a specific figure and each non-financial term you want. Explain briefly why the proposed amount is insufficient — for example, because it largely reflects existing entitlements and does not reflect the value of the claims being released.
- Keep it professional. Employers are more likely to engage constructively with a measured, evidence-based counter-offer than an emotional one. Your solicitor will handle the tone.
- Expect one or two rounds. Most negotiations involve one or two exchanges. If the employer is not moving, your solicitor can advise on whether to push further or accept.
- Check the final wording carefully. Once a figure is agreed, make sure every agreed term appears in the final document — reference schedule, leaving date, restrictions, announcement wording. Verbal agreements that are not in the document are not enforceable.
- Obtain independent adviser sign-off. The agreement is only legally valid once your solicitor has signed the adviser certificate. Do not sign before they do.
Example counter-offer wording
“Without prejudice and subject to contract. Thank you for the proposed settlement agreement dated [date]. We have reviewed the terms on behalf of [employee name]. The proposed payment of £[X] largely reflects existing entitlements — notice pay, accrued holiday and statutory redundancy pay — and does not reflect the value of the claims being released, including [unfair dismissal / discrimination / whistleblowing]. We propose a total payment of £[Y], together with: (1) an agreed reference in the form attached; (2) a leaving date of [date]; (3) removal of the non-compete restriction in clause [X]; and (4) a mutual confidentiality obligation. We ask for a response by [date].”
Protected conversations and “without prejudice” explained
Protected conversation (section 111A ERA 1996)
A protected conversation allows pre-termination negotiations even without an existing dispute. The protection means the conversation cannot be used as evidence in an ordinary unfair dismissal claim. However, it does not protect against discrimination, whistleblowing or automatically unfair dismissal claims — and protection can be lost if the employer behaves improperly or applies undue pressure. Either party can initiate a protected conversation.
Without prejudice
Without-prejudice protection covers genuine attempts to settle an existing dispute and applies to all claim types. It requires a dispute to already exist. It does not apply where there is no existing dispute, or where it is used to conceal unambiguous impropriety. Keep written notes of all without-prejudice discussions and do not assume every statement in a meeting is automatically protected.
Common mistakes to avoid
- Signing under deadline pressure without taking advice
- Resigning before the agreement is finalised — you may lose claims and bargaining power
- Accepting a payment that is mostly pre-existing entitlements without negotiating the premium
- Ignoring the tax treatment — notice pay and holiday pay are always taxable; the first £30,000 of a genuine termination payment is usually tax-free
- Overlooking restrictive covenants — non-compete and non-solicit clauses can follow you for months or years
- Leaving reference wording vague — insist on an agreed reference attached as a schedule
- Discussing negotiations publicly or on social media — this can breach confidentiality and undermine your position
- Waiving unknown future claims without understanding what you are giving up
- Treating statutory pay as settlement consideration — statutory maternity, paternity, adoption or sick pay cannot be signed away and must be paid in full
- Assuming you must use the solicitor your employer suggests — you can choose your own independent adviser
How we negotiate for you
PDA Law's employment team reviews whether negotiation is worthwhile, prepares counter-offers, deals with the employer or its solicitors, and ensures every agreed term appears in the final document. We advise clients across England and Wales, entirely remotely, with same-day review for agreements received by 2pm.
Advice + sign-off
£0 to you
Fee capped at employer contribution, invoiced to employer
Advice + negotiation
£900 inc VAT
We ask the employer to increase its contribution
Executive / complex
£1,500 inc VAT
Share schemes, restrictive covenants, detailed negotiation
Frequently asked questions
Can you negotiate a settlement agreement?
Yes. Settlement agreements are negotiable. Signing is voluntary — your employer cannot force you to sign. Because your employer wants certainty (no tribunal claims, confidentiality, a clean exit), they have reasons to reach terms you will accept. Most first offers can be improved, particularly on the financial payment, the reference, and the scope of any restrictions.
How do I negotiate a settlement agreement?
Start by working out what you are owed regardless of the deal — notice pay, holiday pay, earned bonus, statutory redundancy pay. Then assess the strength of any employment tribunal claims you are being asked to give up. Use those figures to build a reasoned counter-offer in writing, marked "Without prejudice and subject to contract". A solicitor will normally do this for you.
How much should I ask for in a settlement agreement?
There is no fixed formula. The starting point is what you are owed anyway (notice, holiday, bonus, statutory pay). The extra amount — the settlement premium — should reflect the value of the claims you are giving up. Unfair dismissal compensation is capped at the lower of 52 weeks' pay or £123,543 (2026). Discrimination and whistleblowing claims are uncapped. A solicitor can advise on a realistic range for your situation.
How long does settlement agreement negotiation take?
Negotiations often take a few days to two or three weeks, depending on how many rounds are needed and how quickly both sides respond. Most negotiations involve one or two rounds of offers and counter-offers. If your employer has a restructuring deadline, the timeline may be shorter.
Can an employer withdraw a settlement offer?
Yes, before both parties have signed, either side can withdraw. In practice, employers rarely withdraw after a reasonable counter-offer — they have already invested management time and legal costs in reaching this point. If you receive a deadline, take advice promptly rather than letting it pass.
What should I say in a counter-offer?
A counter-offer should be in writing, marked "Without prejudice and subject to contract". It should explain that the proposed amount largely reflects existing entitlements, identify the claims being released, propose a specific figure, and set out each non-financial term you want (reference wording, leaving date, restrictions, announcement). Keep the tone professional and set a reasonable response deadline.
Can I negotiate an agreed reference in a settlement agreement?
Yes. An agreed reference is one of the most valuable and commonly negotiated terms. The agreed wording is usually attached as a schedule to the agreement, covering both written references and what will be said verbally. This gives you certainty about what your employer will say to future employers — particularly important if the departure is on difficult terms.
What is the difference between a protected conversation and a without-prejudice negotiation?
A protected conversation under section 111A of the Employment Rights Act 1996 allows pre-termination negotiations even without an existing dispute, but only protects against ordinary unfair dismissal claims — not discrimination, whistleblowing or automatically unfair dismissal. Without-prejudice protection covers genuine attempts to settle an existing dispute and applies to all claim types, but requires a dispute to already exist. Both can be lost if the employer behaves improperly or applies undue pressure.
Do I need a solicitor to negotiate a settlement agreement?
A settlement agreement is only legally valid if you have received independent legal advice from a qualified solicitor (or other authorised adviser). Beyond the legal requirement, a solicitor can assess whether the offer is fair, identify claims you may not have considered, and negotiate on your behalf. Your employer will usually pay a contribution towards the legal fees.
Who pays for settlement agreement advice?
Your employer is required to make a contribution towards your legal fees. For standard advice and sign-off, PDA Law caps its fee at the employer's contribution and invoices the employer directly — so you pay nothing. If you want us to negotiate on your behalf, the fee is £900 including VAT, and we ask the employer to increase its contribution to cover this.
Can a settlement agreement waive future claims?
The law is unsettled. Recent appeal decisions (Bathgate in Scotland, and Clifford in the Employment Appeal Tribunal) have held that future claims can be waived if the agreement identifies them clearly enough, but this could change on further appeal. In practice, we usually ask for this wording to be removed or narrowed — especially if you are staying in your job or will still rely on your employer for a reference. Claims for statutory pay such as statutory maternity pay cannot be waived at all.
Can I ask my employer for a settlement agreement?
Yes. Employees can initiate settlement discussions. This is often done through a "without prejudice" conversation (where a dispute already exists) or a "protected conversation" under section 111A of the Employment Rights Act 1996 (which can apply before a formal dispute arises). Take legal advice before initiating — a solicitor can help you frame the approach in a way that protects your legal position.
Related employment law services
General information only. This guide is for general information and does not constitute legal advice. Every situation is different. You should take independent legal advice before making any decision about a settlement agreement. PDA Law Solicitors is authorised and regulated by the Solicitors Regulation Authority (SRA No. 622755).