Have you been offered a settlement agreement? Here is what to do now

If you have been offered a settlement agreement by your employer, your first question is probably: what do I do now?

Here’s the short version:

1. Don’t sign anything immediately. You should have at least 10 days to consider the offer.
2. Your employer will pay for you to get independent legal advice. Use it properly.
3. The offer is usually negotiable. The first number is not necessarily the final number.
4. Signing is voluntary. You can refuse, but understand what happens next if you do.

This guide explains why employers offer settlement agreements, what you should consider before signing, and what happens if you decide not to.

If you’ve been offered a settlement agreement and want it reviewed, our employment law team can help. We have offices across the North West including Manchester, Blackburn, Bury, and Accrington, and advise clients throughout England and Wales.

This guide was written by Katie Wright, Senior Associate Solicitor and Head of Civil Litigation at WHN Solicitors. Katie has over a decade of experience in dispute resolution and regularly advises individuals on settlement agreements.

Why Would an Employer Offer a Settlement Agreement?

Understanding your employer’s motivation helps you assess the offer and your negotiating position. Employers generally offer settlement agreements because they want something from you: a clean break with no risk of future claims. That’s valuable to them, which is why they’re prepared to pay for it.

Common reasons why an employer would offer a settlement agreement include: 

• Avoid a Lengthy Process: Redundancy consultations, performance improvement plans, and disciplinary procedures take time and management attention. A settlement agreement lets them skip to the end.
• Tribunal Concerns: If employers handled something badly, or if you have potential claims for unfair dismissal, discrimination, or other issues, a settlement agreement removes the risk of a damaging, lengthy, and costly tribunal.
• Confidentiality: Settlement agreements include confidentiality clauses. If the circumstances of your departure are sensitive or embarrassing for the company, they may want to ensure you can’t discuss it publicly.
• Certainty: Once you sign, the employer knows that the matter is closed. No appeals, no grievances, and no surprises.
• Broken Down Relationship: Sometimes, neither party has done anything wrong, but the working relationship has become unworkable. A settlement agreement offers a dignified exit for both sides.

If your employer is offering you money to leave quietly, ask yourself: what exactly are they worried about? The answer often tells you whether you have more leverage than you realise.

What Happens When You Are Offered a Settlement Agreement?

The conversation usually starts with what is called a “protected conversation” or a discussion marked “without prejudice.” These terms mean the same thing in practice: your employer is signalling that what they are about to say is off the record and can’t be used against them in a tribunal.

Here is the typical process when you are offered a settlement agreement:

1. The Initial Conversation: Your employer (usually HR or your manager) will explain that they would like to discuss your departure and will mention a settlement agreement. They may outline a proposed package verbally before giving you the written document.
2. Written Agreement Received: This sets out the proposed terms, including your termination date, what you’ll be paid, what claims you’re waiving, confidentiality obligations, and other conditions.
3. Time to Consider: The ACAS Code of Practice recommends a minimum of 10 calendar days to consider the offer. If you are being pressured to respond faster, that’s a concern.
4. Legal Advice: For the agreement to be valid, you must receive independent legal advice from a solicitor or certified adviser. Your employer typically pays a contribution towards this, usually £350-600.
5. Negotiation (Where Appropriate): The first offer isn’t always the best offer. Depending on your circumstances, and any potential claims, there may be room to negotiate a higher payment, better reference wording, or other improved terms.
6. Sign or Decline: If you are happy with the terms, you sign. If not, you can refuse.

Throughout this process, remember: nothing is binding until you’ve received legal advice and signed the final document. Take your time and speak to a specialist as soon as possible.

Should You Accept a Settlement Agreement Offered?

Should you sign a settlement agreement? There’s no universal answer, it depends on your circumstances, the offer, and what alternatives you have.

A settlement agreement may be worth accepting if:

• The payment is genuinely better than your statutory entitlements.
• You want a clean break and don’t want to go through a lengthy formal process.
• You don’t have significant claims you’d be giving up.
• The terms include things you value, such as an agreed reference or extended notice.
• You’ve already secured another job and just want to move on.

A settlement agreement may not be worth accepting if:

• The offer is no better than what you’d receive anyway.
• You have strong potential claims that could be worth more at tribunal.
• You believe you’re being pushed out unfairly and want to challenge it.
• You’re being pressured to sign without adequate time to consider.
• The terms include restrictive covenants that could limit your future career.

The key question is: does the offer fairly reflect what you’re giving up? If you have potential claims for unfair dismissal, discrimination, or whistleblowing, these could be worth significantly more than a standard settlement offer. Don’t sign away valuable claims for an inadequate payment.

What Happens If You Don’t Sign a Settlement Agreement?

Signing is voluntary. You can refuse.

If you don’t sign, your employer has several options depending on the circumstances. They may:

• Improve the offer if they’re keen to avoid a formal process or tribunal claim, they may come back with better terms.
• Proceed with a formal process if the settlement was offered instead of redundancy or a disciplinary procedure. They’ll need to go through proper consultation or follow that procedure.
• Do nothing, particularly where the relationship has simply broken down. You may continue in your role, at least for now.
• Dismiss you anyway if there are genuine grounds such as redundancy, misconduct, or performance. But they’ll need to follow a fair process, and you’ll retain your right to challenge the dismissal if it’s unfair.

The important point is this: refusing a settlement agreement preserves your rights. You keep the ability to bring claims if you’ve been treated unfairly. Whether that’s the right choice depends on the strength of your position and what you want to achieve.

Getting a Job After a Settlement Agreement

Many people worry that signing a settlement agreement will make it harder to find a new job. It doesn’t have to, as long as you get a few things right.

The most important aspect is reference wording. A good settlement agreement includes an agreed reference that your employer commits to providing. This should confirm your job title, dates of employment, and ideally that you left on good terms or by mutual agreement. Make sure the wording is included in the agreement and that your employer agrees not to deviate from it.

You will also want to think about how you explain your departure. Settlement agreements often state that the reason for leaving is “mutual agreement” or “redundancy.” You’re generally free to describe your departure to future employers in these terms. The confidentiality clause prevents you discussing the specific terms or circumstances, but it doesn’t prevent you explaining why you left in general terms.

Check whether the agreement includes restrictions on where you can work, which clients you can contact, or which competitors you can join. These “restrictive covenants” can limit your options. If they are unreasonable or weren’t present in your original contract, you may be able to negotiate their removal or reduction.

If you are between jobs, a settlement agreement is no different from any other departure. Focus on what you achieved in the role and why you’re looking for new opportunities. Most employers won’t ask whether you signed a settlement agreement, and you’re under no obligation to volunteer that information. What matters is your reference and how you present your experience.

Red Flags to Watch For in a Settlement Agreement

Not every settlement offer is straightforward. Be cautious if:

• You’re Being Pressured to Sign Quickly: The ACAS Code recommends 10 days minimum. If you’re being told to sign within 24-48 hours, push back.
• The Payment is no Better Than Statutory Minimum: If there isn’t any enhancement on the minimum, why would you sign away your rights?
• No Contribution Towards Legal Fees: This is standard practice. If it’s missing, ask why.
• Recently Raised a Grievance or Complaint: A sudden settlement offer after you’ve complained about discrimination, harassment, or whistleblowing may be an attempt to make a problem go away cheaply.
• Reference Wording is Vague/Missing: Don’t simply assume you’ll get a decent reference. Get it in writing.
• Threats of Dismissal for Failure to Sign: This kind of threat can constitute “improper conduct” and may mean the conversation isn’t actually protected.

If any of these apply, get proper legal advice before making a decision.

Next Steps When You Are Offered a Settlement Agreement

If you’ve been offered a settlement agreement, the most important thing is not to rush. Take the time you’re entitled to, get proper advice, and make an informed decision.

This guide was written by Katie Wright, Senior Associate Solicitor and Head of Civil Litigation at WHN Solicitors. Katie has over a decade of experience in dispute resolution, including advising individuals on settlement agreements — helping them understand what they’re signing, whether the offer is fair, and where there’s room to negotiate. Katie was recently promoted to Senior Associate in recognition of her expertise and contribution to the firm.

For more complex employment matters — including high-value settlements, discrimination or whistleblowing claims, and disputes involving senior employees or directors — WHN Solicitor’s team also includes Michael Shroot, Chief Executive Officer and employment law specialist. Michael is a member of the Employment Lawyers Association with experience representing clients in the Employment Tribunal, Employment Appeal Tribunal, and Court of Appeal.

Contact Katie Wright today via telephone at 01200 408303 or email at katie.wright@whnsolicitors.co.uk

Alternatively, Contact Michael Shroot: 0161 761 8087 and by email michael.shroot@whnsolicitors.co.uk

Our team advises employees across the North West and throughout England and Wales. We’ll explain what you’re signing, assess whether the offer is fair, and advise on negotiation if appropriate.