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ARTICLE · 24 SEPTEMBER 2026

Settlement Agreements: What Employees Need To Know

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United KingdomPrivacy
Shona Christie
Shona Christie

Settlement agreements are a common way of bringing an employment relationship to an agreed end. 

Understanding how they work, what rights may be affected and the importance of obtaining independent legal advice can help employees make informed decisions before signing.

What is a settlement agreement?

A settlement agreement is a legally binding agreement between an employer and an employee, whereby the employee agrees to the termination of their employment and waives any and all claims against their employer.

In return, the employee receives a compensation payment (often referred to as an ex-gratia payment), the first £30,000 of which can be paid tax-free, along with their notice pay and pay for accrued but untaken holiday.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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