Being offered a settlement agreement? Describe your situation and get instant plain English guidance on whether the offer is fair and what to do next.
↓ Try the Checker NowFree to use: Run any checker and read your full results — no account needed. Register free to save and download your results as a printable HTML report.
Describe your situation and we'll check your settlement rights
Tip: Focus on one issue at a time for the clearest answer. If you have multiple issues, run them separately for a full picture on each one.
Include how long you have worked there, what happened, and what you need to know.
Free · No data stored for anonymous checks · Guidance only, not legal advice
Do I need a solicitor to sign a settlement agreement?
Yes. Independent legal advice from an identified, insured adviser is mandatory for a settlement agreement to be valid — it is not optional. Employers typically contribute towards the cost of that advice.
How much of a settlement is tax free?
The first £30,000 of a genuine termination payment is tax free. Anything above that is taxable. This is not discretionary.
How long do I get to consider an offer?
The ACAS Code suggests a minimum of 10 calendar days to consider a settlement offer.
What is a COT3 and how is it different?
A COT3 is an ACAS-brokered alternative to a settlement agreement. Unlike a settlement agreement, it does not require you to take independent legal advice.
What does signing actually give up?
Once signed, a settlement agreement genuinely waives the claims it covers. It must be in writing and must relate to particular complaints rather than being open-ended.
Analysing your situation...
Checking against current UK employment law
Generating...
What you need to know
A settlement agreement (formerly called a compromise agreement) is a legally binding contract between an employee and employer, usually made when employment ends. In exchange for a financial payment, the employee gives up their right to bring specified employment tribunal claims. It cannot be entered into without the employee receiving independent legal advice.
For a settlement agreement to be legally valid, you must receive advice from a qualified independent adviser — usually a solicitor — who is not acting for the employer. This adviser must sign the agreement confirming they have advised you. Employers typically contribute towards the cost of this advice, usually between £250 and £500 plus VAT.
There is no set formula for what a settlement agreement should be worth. Common components include notice pay, accrued holiday pay, an ex-gratia payment, and sometimes an enhanced amount. A solicitor can advise you on whether the offer reflects what you might receive at tribunal. Tactical considerations such as the stress and cost of litigation also matter.
The first £30,000 of a genuine compensation for loss of employment payment is usually tax-free. However, payment in lieu of notice (PILON) is fully taxable as earnings. Holiday pay, bonuses and commission owed are also taxable. Your solicitor can help you understand the tax treatment of each element of your package.
Your employer may open settlement discussions on a 'without prejudice' basis, meaning the conversation generally cannot be used as evidence in tribunal proceedings. Since 2013, employers can also initiate 'protected conversations' about ending employment even where there is no existing dispute, provided there is no improper behaviour.
You should be given a reasonable period to consider the offer and take advice — ACAS recommends at least 10 calendar days. You cannot be pressured into signing immediately. Once signed, a settlement agreement is final and binding, so take the time you need.
This guidance is for general information only and does not constitute legal advice. Always verify current figures and legislation on GOV.UK or seek professional advice for your specific situation.
A settlement agreement offer should be judged against what you'd realistically expect to achieve at tribunal, not just accepted or rejected on gut feeling — and it's only legally binding once you've received independent legal advice on its terms and effect.
Reference wording, confidentiality terms, notice pay, and outstanding holiday pay can all matter as much as the compensation figure itself — a lower headline offer with excellent reference terms may genuinely be worth more to you than a slightly higher offer without them.
Employers often contribute toward this cost specifically because it's in their interest for the agreement to be properly binding — without genuine independent advice, the agreement isn't legally enforceable at all.
UK Work Rights provides free, plain English guidance to help you understand where you stand. Our AI-powered checkers are regularly updated against GOV.UK, ACAS, Shelter, and Citizens Advice to ensure accuracy. We cover 74 free AI rights checkers and 39 guides across employment, housing, benefits, consumer, driving, family and more.
While our guidance covers the vast majority of common situations, complex or high-stakes cases may benefit from professional advice. For employment issues contact ACAS (free) or the Citizens Advice helpline on 0800 144 8848. For housing, Shelter can help on 0808 800 4444.
Further reading: our blog explains how ACAS Early Conciliation works and how long it now takes.
Written and reviewed by Matthew, founder of UK Work Rights. Guidance checked against GOV.UK, ACAS and legislation.gov.uk. This is general rights guidance, not legal advice.
UK Work Rights is completely free and always will be. If this guidance helped you, a small donation helps keep the site running and updated for everyone.
100% goes to the development team who built and maintain this free service. No pressure — the guidance is always free.