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Settlement agreements: checklist for employers

23 February 2021 | Nick Jones

Nick Jones provides a checklist for employers considering offering a settlement agreement. 

A settlement agreement (previously called compromise agreements) is a legally binding contract where an individual waives their right to bring the employment tribunal claims listed in the agreement – usually in return for a payment.

Before deciding whether to offer a settlement agreement:

  • What is the reason you are considering a settlement agreement? Is it the best way to deal with the issue?
  • Have you considered the implications for the employment relationship with the employee if an agreement cannot be reached? And the implications for employment relations in the wider workforce?
  • Is it clear that there is no unlawful discrimination or victimisation involved in offering a settlement agreement in the circumstances?

Offering and negotiating a settlement agreement:

  • Have you carefully considered the value of any financial payment that may be offered? If you are offering a financial payment is the amount an appropriate offer for settlement?
  • Have you considered the taxable status of the payments? Do not offer tax free payments before you’ve properly considered the position.
  • Will you offer to provide a reference? If so, what might that reference say?
  • Making an offer of a settlement agreement is inevitably a sensitive issue – have you considered how best to raise the matter with the employee? And have you thought about the appropriate information the employee may need to allow him/her to make an informed decision about their options?
  • Will it be useful to arrange a meeting, or a series of meetings, to discuss your proposal with the employee? Are you going to ask the employee if they would like to be accompanied at any such meeting?
  • Do you understand the admissibility provisions relating to settlement agreement discussions in employment tribunals and courts?
  • Have you considered what might be a realistic and reasonable timescale for any discussions and negotiations?

Drawing up a formal written settlement agreement

  • Are you aware of all the legal requirements for a settlement agreement to be valid?
  • Does the agreement meet all those legal requirements?
  • Will you offer to pay the cost, or a contribution towards the cost, of the employee’s independent advice? It’s typical to offer a contribution of £350-£500 plus VAT in straight forward situations. The contribution should be higher for senior executive or more complex exits.
  • Have you given the employee a minimum period of 10 calendar days to consider the proposed formal written terms of the settlement agreement and to receive independent advice?


Specialist employment legal advice

If you have any questions about a Settlement Agreement, or any other employment or HR issue, please contact our team of expert employment solicitors. Call 0117 906 9400 or email

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

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