What Should Be Included in a Settlement Agreement?

If you have been offered a settlement agreement, it is important to understand exactly what it should contain—and whether the terms are fair. While every agreement is different, there are several key elements you should expect to see.

Key Terms to Look Out For

Tax-free compensation (up to £30,000)

Most settlement agreements include a compensation payment. In many cases, the first £30,000 can be paid free of tax.

Once you have submitted your agreement for review, one of our specialist settlement agreement solicitors will advise you on whether the compensation is reasonable. If it is not, we will recommend negotiating an improved offer.

In our experience, negotiating compensation is often a worthwhile step. The increase achieved frequently outweighs any legal costs involved—particularly as employers usually contribute towards your legal fees.

Confidentiality clauses

Settlement agreements almost always include confidentiality provisions. These typically prevent both you and your employer from disclosing details about:

• The agreement itself
• The circumstances leading to your departure

Some clauses only restrict disclosure of the terms, while others apply to the existence of the agreement entirely. We will explain exactly what you can and cannot say.

Pre-agreed reference

A strong reference can be crucial when moving on to a new role.

Many settlement agreements include an agreed reference, which your employer must provide if requested. This gives you certainty and helps protect your future employment prospects.

All termination payments

Your agreement should clearly set out all payments due to you, including:

• Outstanding salary
• Holiday pay
• Bonus or commission (where applicable)
• Notice pay

Our solicitors will ensure that everything you are entitled to is properly included and accurately calculated.

Settlement Agreement FAQs

Do you have to pay legal fees?

In most cases, your employer will contribute towards the cost of legal advice. This means we are able to offer the majority of our clients a completely free service.

How long does the process take?

We understand that time is often critical. Our team can usually advise you on the terms and effect of your settlement agreement within 24 hours.

Will you have to pay tax and National Insurance?

You will usually pay tax and National Insurance on:

• Wages
• Holiday pay
• Notice pay
• Any other payments treated as earnings

However, compensation payments (often described as ex gratia or termination payments) are generally tax-free up to £30,000, subject to some exceptions.

Can the compensation be negotiated?

Yes—and it often should be.

Negotiating a settlement agreement can significantly improve the financial outcome. We regularly help clients secure higher compensation packages through careful and strategic negotiation.

Can you bring a claim after signing?

A settlement agreement usually prevents you from bringing or continuing claims against your employer.

However, there are limited exceptions, including:

• If your employer breaches the agreement
• Personal injury claims you were unaware of at the time
• Claims relating to accrued pension rights

Can you tell anyone about the agreement?

Most agreements include confidentiality clauses. These typically fall into two categories:

• Terms-only confidentiality – you can say an agreement exists, but not its contents
• Full confidentiality – you cannot disclose the existence or terms of the agreement

There are always limited exceptions, which we will clearly explain to you.

Can you say what you want about your employer?

Many agreements include a non-derogatory statements clause, which prevents both parties from making negative comments about each other.

This is particularly important to bear in mind when using social media or speaking publicly.

When will you receive payment?

The agreement should specify when payment will be made—typically within 30 days of your termination date or on the next payroll date.

Will you receive a reference?

Employers are not legally required to provide a reference. However, many settlement agreements include one.

Where agreed, your employer must usually provide the reference in the form set out in the agreement, giving you added reassurance when applying for new roles.

How Attwells Solicitors Can Help

Settlement agreements can feel overwhelming, particularly when you are already dealing with the stress of leaving a role. Our expert team will:

• Explain your agreement in clear, straightforward terms
• Advise whether the compensation is fair
• Negotiate a better deal where appropriate
• Ensure your rights and future prospects are protected

Contact Attwells Solicitors today for fast, friendly advice – often within 24 hours, and usually at no cost to you.