My employer offered a settlement agreement, should I sign?

A settlement agreement (formerly called a compromise agreement) is a legally binding contract under which you agree to waive your right to bring Employment Tribunal or court claims in exchange for a financial payment and/or other benefits. For the agreement to be valid, you must have received advice from a relevant independent adviser — usually a qualified solicitor — who is covered by professional indemnity insurance. Your employer must contribute to the cost of that advice (a standard contribution is £250–500 plus VAT, though this is negotiable).

Before signing, you should understand: (1) what claims you are waiving — the agreement should list them and you should consider whether any exist; (2) whether the payment offered is fair in light of those potential claims; (3) the tax treatment of any payment — up to £30,000 can often be paid free of income tax; (4) any confidentiality or non-disparagement obligations; (5) whether any reference terms are attached.

Common situations where settlement agreements arise include redundancy, capability dismissal, disciplinary situations, and disputes. The fact that an employer is offering a settlement often signals that they are concerned about the strength of their legal position.

You are under no obligation to accept the first offer. Settlement agreements are often negotiable. Your solicitor can advise on whether the amount is in line with what you might receive at tribunal and help you negotiate better terms.

Take the full time allowed to consider the offer — employers must give a minimum of 10 days in most cases.