A settlement agreement is a written, voluntary and legally binding document that settles an employment dispute, for example a possible employment tribunal claim. Acas guidance, which refers to courts in England and Wales and in Scotland, describes the conditions for validity and the rules on confidentiality. Northern Ireland has its own system and is not covered here.
What a settlement agreement is
According to Acas, settlement agreements used to be called compromise agreements. They are reached through discussion and negotiation and can include a financial payment, an employment reference, an agreement not to make a tribunal claim and a confidentiality clause. They can be made with a worker, a former worker or a job applicant, and can be used either to end employment or to settle a dispute while it continues, such as a disagreement about a bonus. Either side may suggest one. Acas cautions that a settlement agreement is not always the best way to resolve a problem: employers can often deal with issues through good performance management and fair discipline and grievance procedures, which is usually the quickest solution.
The conditions for validity
Acas states that a settlement agreement must meet every one of these conditions to be legally valid: it is in writing; it relates to a specific complaint or claim at an employment tribunal or another court; the worker gets advice from a relevant independent adviser; the adviser is insured; and the agreement names the adviser. The agreement must also state that these conditions are met and identify the specific claims it covers. Acas gives an example of what fails: wording that the agreement is in “full and final settlement of all claims” would not be valid.
Different claims depend on legal status. Some, such as unfair dismissal, can only be brought by employees, while a discrimination claim can be brought by employees, workers, former staff or job applicants.
Independent advice and time to consider
The independent adviser must not be employed by, or acting for, the employer. Acas lists a qualified lawyer, a certified and authorised trade union officer, official, employee or member, or a certified and authorised advice centre worker. The employer does not have to pay for the advice, but Acas says they should consider offering to. Because a settlement agreement is a legal document, Acas adds that employers should also take legal advice, and that if an offer is rejected they should try to address the underlying causes of the problem, for example through training, mediation or their performance and disciplinary procedures.
Employers should allow reasonable time to consider a written offer and take advice. Acas says its Code of Practice on settlement agreements recommends allowing at least 10 days, and that a disabled worker may need longer as a reasonable adjustment, for example to arrange a sign language interpreter. Inadequate time can, in some situations, allow settlement discussions to be used as evidence in a tribunal claim.
Confidentiality clauses and protected conversations
Acas explains that confidentiality clauses, sometimes called non-disclosure agreements, are voluntary and should make clear what can be shared and with whom. Employers cannot use them to stop a worker whistleblowing, reporting a crime to the police or, in England and Wales, sharing information about a crime to get advice and support as a victim. Acas also says that from 6 April 2026 sexual harassment is a qualifying disclosure under whistleblowing law.
Settlement discussions are usually confidential and cannot normally be used as evidence in a tribunal or court. Acas says this rests on the “without prejudice” principle and section 111A of the Employment Rights Act 1996, with exceptions for unambiguous impropriety or improper behaviour. It adds that there is no legal right to be accompanied at a settlement meeting, although allowing a colleague or union representative is good practice.
Payments and breach
Payments and any deductions should be set out in the agreement, and Acas notes that tax and National Insurance are usually deducted from wages, bonuses, commission, holiday pay and pay in lieu of notice. Tax on termination payments is complex, so advice from a tax adviser or HMRC is suggested. If the terms are broken, for example a payment is missed or confidentiality is breached, it is a breach of contract and a claim can be made to the county court in England and Wales or the sheriff court in Scotland.
FAQs
Do I have to accept a settlement agreement?
No. Acas describes them as voluntary, and a worker can negotiate or make a counter-offer.
Does my employer have to pay for my legal advice?
Not by law, according to Acas, although employers are encouraged to consider paying so that the worker can get proper advice.
Can a confidentiality clause stop me talking to the police?
No. Acas says employers cannot use a confidentiality clause to stop someone reporting a crime to the police or whistleblowing.
Bottom line
A settlement agreement is valid only when it is in writing, covers named claims, and the worker has taken advice from a named, insured, independent adviser. Confidentiality has legal limits, discussions are usually protected, and time to consider matters. Because signing gives up the right to bring the listed claims, general information like this is not a substitute for independent legal advice.