What Should be Included in a Settlement Agreement?

A Settlement Agreement is a legally binding contract between an employee and an employer and is often used to end an employment relationship to resolve a problem or a dispute.

You or your employer can ask for a Settlement Agreement to try to find a solution to the issues you’re having. But if you decide to agree to one, you’ll lose your right to take any potential claim you might have to an Employment Tribunal.

Because you lose your legal rights to make a claim, getting legal advice from an independent advisor or an Employment Solicitor is an essential part of the Settlement Agreement process. Your legal advisor or Solicitor will need to sign the agreement to say that you’ve received advice and your employer usually pays for you to get that advice.

Make sure you get the best outcome possible from your Settlement Agreement with detailed and comprehensive legal advice from our Employment Law Solicitors.

Call us on 08002605010 or request a callback and we will help you.

Legal Requirements of Settlement Agreements

The Settlement Agreement must:

  • Be in writing
  • State specifically what claims are excluded from being made once it’s signed
  • Be signed by the employee
  • Must confirm that you’ve had independent legal advice from the legal advisor identified in the agreement
  • State that all legal requirements have been satisfied

Most employers in England and Wales will pay for you to get independent legal advice, or at least contribute to this but this should be made clear in your settlement agreement offer. Getting specialist legal advice is also important to make sure you get the best possible outcome. Our Employment Solicitors will often negotiate with employers in order to obtain an improved settlement package.

What is Included in a Settlement Agreement?

Each Settlement Agreement is different because each and every situation is different, but there are some parts that are usually included.

The agreement is drafted by your employer. It will set out exactly what’s being offered and the proposed date of the termination of your employment. It will also reference the relevant employment legislation and state that the agreement satisfies them.

You can see the things above that have to be in a Settlement Agreement, but there are some other things that are included sometimes. They are:

  • Termination Payments [these will be anchor links]
  • References
  • Confidentiality clause

Let’s look at each of these things individually:

Termination Payments

When your employer offers you a Settlement Agreement, this should include payments in respect of your salary and accrued holiday up to your termination date. The Settlement Agreement should also provide for your notice period. This could include a payment in lieu of notice.

Your employer should also carefully consider the reasons for offering you a Settlement Agreement in the first place, how long it would take to resolve the dispute if they didn’t, and how much it would cost to go to an Employment Tribunal if they can’t reach an agreement with you.

All of these factors may decide how much compensation they offer you. It’s important to note that any contractual payments made are generally taxable and subject to National Insurance Contributions. These include holiday pay or payments in lieu of notice. For more information see taxable payments in a Settlement Agreement.


As part of the Settlement Agreement, you may want your employer to include a reference. As a basic starting point, your employer is not required to give you a reference. So, it could make sense to ask your employer for a helpful reference as part of the settlement terms.

Many employers will give factual references including start dates, finish dates and confirmation of your job title.

Including the reference in the Settlement Agreement gives you some degree of control. It could also allow you to take action against your formal employer if the reference doesn’t comply with the terms of the Settlement Agreement. 

Confidentiality Clause

Another common feature of a Settlement Agreements is a confidentiality clause. Your employer will probably want you to keep the details of the agreement private with a confidentiality clause.

Our Employment Solicitors will work with you to make sure that any confidentiality clauses are mutual. This means that your employer also has an obligation to keep the terms confidential. This can also apply to non-derogatory statements or comments, giving you some peace of mind that your employer will not bad mouth you after your employment has terminated.

Confidentiality clauses should generally have exclusions for whistleblowing or where any disclosure is required by law. You also shouldn’t be prevented from disclosing your settlement to legal advisers, immediate family members and, in some cases, prospective employers. 

Get Specialist Legal Advice

It’s really important to get legal advice when agreeing a Settlement Agreement. This will help you to get the best possible outcome.

Our Employment Law Solicitors have helped many people in your situation and we can help you too. We’ll get all the information about what you want from the Settlement Agreement, review the agreement you’ve been offered by your employer and negotiate on your behalf so you can get closer to what you want.

We can help you to clearly understand the impact of signing a Settlement Agreement, and the potential cost to your employer of any potential claim, which will help you to understand the value of your Settlement Agreement.

Call and speak to one of our specialist Employment Solicitors for help and advice now.

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