Whether you’re an employer navigating a tricky exit or an employee facing a career crossroads, settlement agreements can be a powerful tool—but only if you understand them. Here are the top 10 questions I get asked, answered clearly and candidly.

1. What is a settlement agreement? 

A legally binding contract between an employer and employee that ends a dispute or employment relationship—usually with compensation in exchange for the employee waiving legal claims.

2. When are they used?

Typically during redundancies, performance issues, workplace disputes, or when both sides want a clean break. They’re common in negotiated exits.

3. Do I have to accept one? 

No. Employees are under no obligation to sign. It’s a voluntary agreement, and nobody should be pressured to sign. Legal advice is essential before signing.

4. What’s in it for the employee? 

Usually a financial package—often tax-free up to £30,000—plus a reference, confidentiality terms, and usually the employer covers the employee’s legal costs.

5. What’s in it for the employer? 

Certainty. Once signed, the employee can’t bring claims like unfair dismissal or discrimination. It’s a clean slate and typically contains clauses protecting the employer’s reputation.

6. Can I negotiate the terms? 

Absolutely. Employees can ask to make changes to the terms including the settlement amount, reference wording and even the termination date. Employers will the decide whether to accept or reject any amendments.

7. Is legal advice mandatory? 

Yes—for employees. The agreement isn’t valid unless the employee gets independent legal advice. Employers usually cover the employee’s legal cost.

8. What are the risks of not using one? 

For employers: potential tribunal claims, reputational damage, and legal costs. 

For employees: missing out on compensation or protection.

9. Can it include non-financial terms? 

Yes. Confidentiality clauses, non-disparagement agreements and restrictions on future employment (like non-compete agreements) are common.

10. What happens after signing? 

The agreement becomes binding, the employee receives the agreed payment and grievance or disciplinary processes or employment claims are withdrawn.

In conclusion… 

Settlement agreements aren’t just legal paperwork—they’re about closure, protection, and moving on. Whether you’re offering or receiving one, get advice early and make sure it works for you. Whether you are an employer or an employee and need advice and assistance in relation to a settlement agreement please call Jon Dunkley or Lucy Phillips who will be able to assist.

You can also complete an online enquiry form. One of the Wollens team will contact you as soon as they are available.