Settlement agreements: what they are and how they work

What is a settlement agreement?

Acas describes it as a document that sets out the terms for settling an employment dispute. It can also be used to end a job. It is:

• in writing and legally binding;
• voluntary: nobody has to make one or sign one;
• reached by discussion and negotiation.

Either side can suggest one. In practice, it is often the employer, for example before or during a dismissal, a redundancy or a dispute.

In exchange for a payment or other terms, you agree not to bring the claims listed in the agreement. Normally, an agreement that stops you going to an employment tribunal is void ERA 1996, s.203(1). A settlement agreement is the exception, but only if the legal conditions are met s.203(2)(f).

The legal conditions

The law sets six conditions s.203(3). The agreement must:

1. be in writing;
2. relate to the particular complaints or proceedings;
3. be signed after you have received advice from a relevant independent adviser on its terms and effect, and in particular on its effect on your ability to pursue your rights before an employment tribunal;
4. be covered by the adviser’s insurance (or professional indemnity) at the time of the advice;
5. name the adviser;
6. state that the conditions are met.

Acas adds that the agreement must list the specific claims it covers. Wording such as “in full and final settlement of all claims” on its own would not be valid.

The independent advice is a legal requirement

This is not optional. Without advice from a relevant independent adviser, the agreement does not stop you bringing the statutory claims it lists.

The law says who can be a relevant independent adviser s.203(3A) and (4):

• a qualified lawyer: in England and Wales, a person authorised under the Legal Services Act 2007; in Scotland, an advocate or a solicitor with a practising certificate;
• an officer, official, employee or member of an independent trade union, certified in writing by the union as competent and authorised to give this advice;
• a person who works at an advice centre, employee or volunteer, certified in writing by the centre in the same way;
• another type of person named in an order.

The adviser cannot be someone who works for or acts for your employer, or an associated employer, in the matter s.203(3B).

Who pays? Acas says the employer should consider offering to pay for the independent advice, but does not have to. The agreement often says how much the employer contributes. Ask before you start.

This site does not give that advice and cannot act as your adviser. Its calculators help you know your figures before you speak to one.

How the process usually goes

1. A conversation. Settlement discussions are confidential. Acas calls them “protected conversations”. They cannot usually be used as evidence in an ordinary unfair dismissal claim s.111A(1). This protection does not apply where the claim is that the dismissal was automatically unfair, for example for whistleblowing s.111A(3), and it is limited where the tribunal finds behaviour improper s.111A(4). Discrimination claims are not covered by section 111A.
2. Company. There is no legal right to be accompanied to a settlement meeting. Acas says it is good practice to let you bring a colleague or a trade union representative.
3. The written offer. The draft sets out the payment, the leaving date and the terms.
4. Time to think. Acas recommends allowing at least 10 days to consider it, and says what is reasonable depends on the situation. Employers must make reasonable adjustments for a disabled worker, which may mean more time.
5. Independent advice, then signature. The adviser is named in the agreement.
6. Payment, on the date written in the agreement.

If you say no, nothing is signed. Acas says employers should then try to resolve the underlying problem. Your rights, and your time limits, stay as they were.

What a settlement agreement can include

Acas lists examples:

• a financial payment;
• an employment reference;
• an agreement not to bring a tribunal claim;
• a confidentiality clause.

An agreement can also deal with the leaving date, the return of company property or an agreed announcement. If it is not written in the agreement, do not count on it.

Confidentiality clauses in 2027. The government timeline lists regulations to stop non-disclosure agreements being used to prevent workers speaking about harassment or discrimination. On 20 October 2026, they are planned for 2027, with no date.

Check your final pay before you sign

A settlement agreement usually settles everything listed. So it matters which sums are in the payment, and which are paid on top.

Example. A fictional offer on leaving:

Line	Amount	Tax, according to GOV.UK
Compensation for loss of employment	£15,000.00	Usually no tax on the first £30,000, combined with any redundancy pay
Pay in lieu of 7 weeks’ notice (7 × £600)	£4,200.00	Taxed, with National Insurance
Holiday pay not taken (3.8849 days × £120)	£466.19	Taxed, with National Insurance
Total, before tax	£19,666.19

If the draft offers “£15,000 in full settlement” with no separate lines, ask whether notice pay and holiday pay are included. If they are, the real compensation is £10,333.81, not £15,000. The pay in lieu of notice guide and the holiday pay guide explain those two figures, and the redundancy pay tax guide explains the £30,000 rule. Notice pay is taxed even when it is called compensation.

Settlement agreement or Acas COT3?

If you have already contacted Acas, an agreement can also be reached through an Acas conciliator. It is recorded on a form called a COT3. The section 203 conditions above, including the independent adviser, are for settlement agreements: an agreement reached where an Acas conciliator has taken action is a separate exception s.203(2)(e). Acas says a COT3 is binding once both sides have agreed, even before signing. The Acas early conciliation guide explains the process.

If the agreement is broken

Acas says that if the terms of a settlement agreement are broken, it is a breach of contract. A claim can be made in the county court (England and Wales) or the sheriff court (Scotland).

Your time limit does not stop

Talking about a settlement does not pause the tribunal time limit. If no agreement is signed, you still need to contact Acas in time: 6 months minus 1 day for most problems on or after 1 October 2026, 3 months before. The tribunal time limits guide explains how to count it.

Northern Ireland

Northern Ireland has its own rules on these agreements and its own conciliation service, the Labour Relations Agency. This guide does not cover it.

What to do now

1. Know your figures, free. The final pay checker works out what is due line by line. If you tell it you have already signed a settlement agreement or a COT3, it does not offer the paid letters: the agreement may already settle those sums.
2. Check your deadline, free. The time limit calculator gives your last day to contact Acas, with a free email reminder.
3. Next step. Before signing, get the independent advice the law requires. A trade union, an advice centre or a qualified lawyer can give it; Acas and Citizens Advice can explain the process.