TRW & Co · Employment, Pensions & Immigration
Settlement Agreement Solicitors in London
A settlement agreement is the only reliable way, outside Acas conciliation, to waive statutory employment claims. Our settlement agreement solicitors London clients instruct explain the statutory conditions, tax treatment and confidentiality limits, and how the Employment Rights Act 2025, with its shorter qualifying period and uncapped compensation, changes the value of an exit negotiated now.
Key pointSettlement value is shifting: once the six-month unfair dismissal qualifying period and the removal of the compensation cap take effect in 2027, the same exit can carry very different risk depending on which side of the commencement date it is signed.
At a glance
Statutory conditions are strict
Under section 203 ERA 1996 the agreement must be written, list the particular claims, follow independent advice from an insured adviser and name that adviser.
Acas COT3 is the alternative
A settlement reached through Acas conciliation is recorded on a COT3 and does not need independent legal advice, but its terms are often less detailed.
Tax-free element is limited
The first £30,000 of qualifying non-contractual termination payments is usually tax-free; notice pay is taxed as earnings under the post-employment notice pay rules.
NDAs face statutory limits
Clauses cannot block protected disclosures, and since October 2025 cannot stop crime victims in England and Wales speaking to police, lawyers or regulators.
2027 changes raise the stakes
Six-month unfair dismissal protection and an uncapped compensatory award are due from 1 January 2027, reshaping exit risk for senior earners.
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What settlement agreements cover in England and Wales
A settlement agreement is a legally binding contract under which an employee or worker gives up specified employment claims in return for agreed terms, usually a payment. As settlement agreement solicitors London employers and senior individuals instruct, we see these agreements used to end employment cleanly, to resolve a live grievance or tribunal claim, and to close out disputes over bonuses, shares and restrictive covenants.
The reason the document matters is statutory. Most employment rights cannot be signed away by an ordinary contract. A waiver only works if it satisfies the conditions Parliament has set, or if it is reached through Acas conciliation. A badly drafted agreement can leave the employer paying money while the claims it thought it had settled remain alive.
Settlement agreements are not only for exits. They are used with job applicants who allege discrimination, with former employees who bring claims after leaving, and with current staff where a dispute is resolved but employment continues. Acas notes that the parties can include a payment, a reference, an agreement not to bring tribunal proceedings and a confidentiality clause.
When it becomes a legal question
The legal question usually starts earlier than people think: at the first "without prejudice" or "protected conversation", when a performance process stalls, when a grievance alleges discrimination or whistleblowing, or when a business is restructuring. The way that first conversation is handled affects whether it can later be used in evidence, and therefore how much leverage each side has.
The legal framework: statute, Acas and the tribunals
Every piece of advice from settlement agreement solicitors London clients rely on starts from the same statute. The starting point is section 203 of the Employment Rights Act 1996. It makes void any agreement that tries to exclude rights under the Act or stop someone bringing tribunal proceedings, unless an exception applies. The key exception is a settlement agreement that meets the statutory conditions.
The statutory conditions
Under section 203(3), the agreement must be in writing and must relate to the particular proceedings or complaints. The employee or worker must have received advice from a relevant independent adviser on its terms and effect, particularly its effect on their ability to pursue tribunal claims. The adviser must be covered by insurance or a professional indemnity when the advice is given, the agreement must identify the adviser, and it must state that the statutory conditions are satisfied.
Equivalent conditions for discrimination, harassment and equal pay claims sit in section 147 of the Equality Act 2010. Other statutory regimes, such as working time and part-time or fixed-term worker protections, carry their own matching rules. A well-drafted agreement lists each claim being compromised by type and statutory source; Acas warns that a bare "full and final settlement of all claims" will not do.
Acas conciliation and the COT3 route
The alternative is an Acas-conciliated settlement recorded on a COT3 form. Because a conciliation officer has taken action under the Employment Tribunals Act 1996, the section 203 conditions do not apply and no independent legal advice is required. COT3s are common once early conciliation has started or a claim is lodged, and they can be quicker, but they are often less detailed on tax, references and post-termination obligations.
Protected conversations and without prejudice
Section 111A of the Employment Rights Act 1996 makes evidence of pre-termination negotiations inadmissible in an ordinary unfair dismissal claim, even where no dispute yet exists. The protection is narrow. It does not cover discrimination, whistleblowing or automatically unfair dismissal claims, and where the tribunal finds improper behaviour, such as undue pressure, it applies only to the extent the tribunal considers just. The common law "without prejudice" rule is wider in scope but requires an existing dispute.
Acas publishes a statutory Code of Practice on settlement agreements, which recommends that the employee is given a reasonable period to consider a proposal (ten calendar days is cited as a guide) and is allowed to be accompanied at meetings. Tribunals take the Code into account when deciding whether conduct was improper.
How the Employment Rights Act 2025 changes the negotiation
The Employment Rights Act 2025 received Royal Assent in December 2025 and is being brought into force in stages. Several measures change the value of a settlement before a single number is discussed. Our Employment Rights Act 2025 timeline tracks each date.
- Unfair dismissal qualifying period. The government has confirmed that the qualifying period for ordinary unfair dismissal falls from two years to six months from 1 January 2027. Employees with six months' service on that date gain protection immediately.
- Compensation cap. The statutory cap on the unfair dismissal compensatory award is due to be removed from the same date. For senior earners, that turns an exposure capped at a year's pay into an uncapped loss-of-earnings claim.
- Time limits. The time limit for most tribunal claims is being extended from three to six months, which lengthens the period during which an unsettled individual can bring proceedings.
- Confidentiality clauses. The Act contains powers to make void confidentiality terms that stop workers speaking about harassment or discrimination. The government consulted on the detail in 2026 and these provisions are not yet in force; we check their status before every agreement.
From 2027, the question for an employer will rarely be "can they claim?" and more often "what is an uncapped claim worth, and what will it cost to defend?"
For employers planning exits in late 2026, the practical consequence is timing. An agreement signed before the new rules commence settles claims on today's risk profile; one signed after them prices in uncapped exposure. For employees, the same timing cuts the other way. Settlement agreement solicitors London clients rely on should model both scenarios.
Key decisions and how to approach them
Most exits involve the same handful of choices. Making them deliberately, rather than by default, is what separates a clean exit from a second dispute.
| Route | When it fits | Advice requirement | Main trade-off |
|---|---|---|---|
| Settlement agreement (s.203 ERA / s.147 EqA) | Negotiated exit, before or after a claim | Independent adviser must advise the individual | Most flexible on terms; takes longer to draft |
| Acas COT3 | Early conciliation under way or claim lodged | None required by statute | Faster and cheaper; terms often thinner |
| Consent order or Tomlin order | Court proceedings, typically contractual or high-value | Parties usually represented | Enforceable through the court; does not on its own waive statutory tribunal rights |
| Withdrawal without terms | Weak claim or change of circumstances | None | No certainty: costs and re-litigation risks remain |
Protected conversation or open process?
A protected conversation can save months of process, but it is only useful where the main risk is ordinary unfair dismissal. Where the employee has raised discrimination or whistleblowing concerns, the conversation may be admissible, and a clumsy approach can become evidence of the very treatment alleged. In those cases, an open process or a clearly without prejudice approach after a dispute has crystallised is usually safer.
Payment structure
The headline figure matters less than how it is built, and settlement agreement solicitors London employers instruct should test each component. Notice pay, holiday pay, bonus, statutory redundancy pay, enhanced severance and compensation for discrimination are each treated differently for tax and National Insurance. Our guide to how much a settlement agreement should pay sets out the components negotiators usually compare.
Shares, bonuses and deferred pay
For senior staff, the larger value often sits in unvested awards, carried interest or deferred bonus. Plan rules usually decide whether someone is a good or bad leaver, and many give the remuneration committee a discretion. The settlement agreement should record exactly how that discretion is exercised. Our share plans and incentives team and senior executive employment lawyers work on these together.
Process and timeline
When settlement agreement solicitors London parties appoint are involved early, a straightforward exit can be agreed within a few weeks. Contested exits involving allegations, regulators or equity can take months. The sequence below is typical.
- Assess the risk. Identify the claims the individual could bring, their length of service, the likely value of each claim and any regulatory or reputational exposure. Check whether early conciliation has already started.
- Choose the opening. Decide between a protected conversation, a without prejudice approach or an open process, and prepare a script and an outline offer in writing.
- Make the written offer. Send heads of terms or a draft agreement marked appropriately, giving a reasonable period to consider it and contributing to the individual's legal fees.
- Independent advice. The individual's adviser reviews the draft, raises points on the claims list, tax, references and covenants, and negotiates the figure.
- Agree ancillary documents. Settle the agreed reference, internal and external announcements, resignation letters for directorships and any regulatory notifications.
- Sign and certify. The individual signs; the adviser signs a certificate confirming the statutory conditions. Employers should not pay until the signed agreement and certificate are received.
- Pay and perform. Payroll applies the correct tax treatment, property is returned, and both sides perform any post-termination obligations.
Check the date of the first "act complained of" before talking terms. Once the extended tribunal time limits apply, an individual who refuses an offer has more time to start early conciliation, so a deadline imposed by the employer carries less pressure than it once did. Build the negotiation calendar around the real limitation dates, not an arbitrary acceptance deadline.
Tax, National Insurance and payroll treatment
HMRC's guidance on tax on termination payments sets out the basic architecture. Contractual payments, such as salary to the termination date, holiday pay and contractual bonuses, are taxed as earnings in the usual way.
The first £30,000 of qualifying non-contractual payments, which include statutory redundancy pay and genuine compensation for loss of employment, is usually free of income tax. Tax applies above that figure, and the employer pays Class 1A National Insurance on the excess. Statutory redundancy pay counts towards the £30,000 but is itself not taxed.
Where the employee does not work their notice, the "post-employment notice pay" rules treat the part of the payment equivalent to basic pay for the unworked notice as earnings, subject to tax and National Insurance, whatever the agreement calls it. Injury to feelings payments in discrimination cases, and payments for psychiatric injury, raise separate questions and should be considered case by case.
Settlement agreement solicitors London employees instruct will expect the employer to fund part of the advice. Employers usually agree to pay a contribution towards the individual's legal fees directly to the adviser. HMRC allows this without a tax charge if the conditions are met, so the agreement should state the contribution, the payee and that it is for advice on termination. Our tax solicitors review structures where the figures are large or the individual is internationally mobile.
Documents and evidence to assemble
A settlement agreement is only as good as the facts beneath it. Before negotiating, gather:
- The contract of employment, offer letter, any service agreement and later variations, including notice, garden leave and payment in lieu provisions.
- Bonus, commission, share plan and long-term incentive rules, award letters and any remuneration committee minutes on leaver treatment.
- Restrictive covenants and confidentiality provisions, together with the business case for enforcing them.
- The personnel file: appraisals, performance plans, disciplinary or grievance records, and any whistleblowing or discrimination complaints.
- Pay data: salary, benefits, pension contributions, accrued holiday and any outstanding expenses.
- For regulated firms, the regulatory reference obligations, conduct rules records and any matters that must be disclosed to a future employer.
- For sponsored workers, the certificate of sponsorship and the sponsor's reporting obligations to the Home Office.
For individuals, keep contemporaneous notes of key conversations, copies of complaints raised and evidence of loss, such as job search efforts. These shape what settlement agreement solicitors London claimants instruct can credibly argue on value.
Risks and common mistakes
Using a generic waiver of "all claims"
A settlement agreement must relate to the particular proceedings or complaints, and Acas guidance confirms that a bare "full and final settlement of all claims" does not satisfy the statutory conditions for statutory rights. The fix is a properly drafted list of claims by type and statutory source, combined with a carefully worded general waiver for contractual and common law claims. Even then, the courts require very clear words to waive claims a party could not have known about, and some claims, such as accrued pension rights and unknown personal injury claims, are usually carved out. Overreaching drafting can undermine the whole clause.
Gagging clauses that go too far
Confidentiality and non-disparagement clauses are standard, but several statutory limits apply. A clause cannot stop a worker making a protected disclosure under the whistleblowing provisions. Since 1 October 2025, section 17 of the Victims and Prisoners Act 2024 makes void any term that stops a victim of crime disclosing information to the police, lawyers, regulators and specified support services in England and Wales. Solicitors are also subject to the SRA's expectations on the improper use of non-disclosure agreements. An unenforceable clause offers no protection and can cause reputational damage if disclosed.
Improper behaviour in protected conversations
The section 111A protection falls away to the extent the tribunal considers just where something said or done was improper. The Acas Code gives examples such as harassment, bullying, physical assault, victimisation, discrimination and putting undue pressure on a party, for example by saying that if the offer is not accepted the employee will be dismissed before any process has been followed. Managers who improvise during these meetings create evidence. A short script, a witness, a written offer and a reasonable time to consider are simple safeguards.
Paying before the paperwork is complete
An agreement that is not signed by the individual, or that lacks the adviser's certificate, may not satisfy the statutory conditions. Employers sometimes release payment on the strength of an email confirmation, only to find that the individual has second thoughts. The agreement should make payment conditional on receipt of the signed agreement, the adviser's certificate, return of company property and, where relevant, resignation from directorships. Payment should follow promptly once those conditions are met, because late payment can itself trigger a contractual dispute.
Ignoring regulatory and immigration consequences
In FCA-regulated firms, an exit can trigger regulatory reference duties, notifications about senior managers and conduct-rule breach reporting. These obligations cannot be bargained away, and an agreed reference must be consistent with them. For sponsored workers, ending employment triggers the employer's reporting duties under the sponsor guidance and may shorten the individual's permission to stay. Settlement terms on references, timing and garden leave should be drafted with these obligations in view, not discovered afterwards.
Scotland and Northern Ireland differences
Section 203 of the Employment Rights Act 1996 extends to Scotland, so the same settlement agreement conditions apply in Scottish tribunals, although contract and evidence law differ in places. Northern Ireland has its own employment legislation and its own conciliation service, the Labour Relations Agency, so agreements for Northern Ireland employees must refer to the Northern Ireland provisions. The Victims and Prisoners Act 2024 restriction on non-disclosure agreements described above extends to England and Wales only.
Cross-border exits: Bangladesh, the EU, the Gulf and Asia
International groups often employ London staff through a UK subsidiary but run pay, equity and decision-making from abroad. That creates three recurring issues.
Governing law and jurisdiction. UK statutory rights apply to employees working in Great Britain regardless of the contract's chosen law. A settlement agreement must deal with those statutory rights under UK rules, even if the employment contract is governed by Bangladeshi, Emirati or Singaporean law. Where the individual also worked in other countries, local waivers may be needed under those laws.
Group equity and parent decisions. Where shares or bonus pools sit with a parent in Dhaka, Dubai or Singapore, the parent may need to be a party to, or give an undertaking in, the agreement. Our UK–Bangladesh corridor team coordinates with colleagues in TRW's Dhaka office where Bangladeshi corporate approvals or foreign exchange rules affect how a payment can be made.
Tax residence and immigration. Individuals who leave the UK after termination may be non-resident for part of the year, which changes the tax analysis. Sponsored workers need advice on how long they can remain and whether they can switch to another route. Our business immigration lawyers advise in parallel so that the exit and the immigration position are aligned.
How TRW & Co helps: settlement agreement solicitors London
TRW & Co's London office is authorised and regulated by the Solicitors Regulation Authority. We act for employers, and for employees and executives, on settlement agreements and the disputes behind them. Where a matter goes to a hearing, our employment tribunal team conducts the litigation, and where advocacy in the higher courts is required we instruct specialist counsel.
Exit strategy for employers
We assess claim risk, choose between a protected conversation and an open process, and script the first meeting. We then draft the agreement, claims schedule and ancillary documents to fit the business's policies.
Independent advice for individuals
We give the statutory advice an employee needs before signing, review the claims being waived and negotiate the figure, reference and covenants. We sign the adviser's certificate once the terms are right.
Senior and regulated exits
We handle board-level departures, including resignation from directorships, announcements, regulatory references and leaver treatment under share plans and deferred bonus rules.
Contentious settlements
Where grievances, discrimination or whistleblowing allegations are live, we combine investigation advice with negotiation. That protects the employer's position if talks fail and the matter proceeds to the discrimination or whistleblowing claims route.
Restructuring and group exits
For redundancy programmes and transfers, we prepare template agreements, consultation records and payment structures. Our TUPE and redundancy lawyers run the process side.
Covenants and confidentiality
We draft enforceable post-termination restrictions and confidentiality terms that respect statutory limits, and advise on enforcement through our restrictive covenants practice.
As settlement agreement solicitors London businesses and individuals can brief quickly, we aim to give a clear view of the claims, the value range and the drafting risks at the outset. We do not promise outcomes. You can see how this work fits our wider employment law practice and full list of practices.
Checklist for decision-makers
- Have we identified every claim the individual could bring, including discrimination, whistleblowing and contractual claims, and their limitation dates under the current rules?
- Do we know how the Employment Rights Act 2025 changes, particularly the six-month qualifying period and the removal of the compensation cap, affect this person if the exit runs into 2027?
- Is a protected conversation appropriate, or do existing complaints make an open or without prejudice approach safer?
- Has the payment been split into its tax components, with post-employment notice pay calculated correctly?
- Have shares, bonuses, carried interest and pension been dealt with expressly, with any committee discretion recorded?
- Are confidentiality and non-disparagement clauses consistent with whistleblowing law and the Victims and Prisoners Act 2024?
- Have regulatory references, immigration reporting and directorship resignations been addressed?
- Does the agreement name the independent adviser and confirm the statutory conditions, and will payment be released only on receipt of the signed documents?
For an early view from our settlement agreement solicitors London team, contact TRW & Co. Readers comparing options may also find our guides to unfair dismissal and the employment tribunal process useful.
Frequently asked questions
01Do I have to take legal advice before signing a settlement agreement?
Yes, if the agreement is meant to waive statutory employment claims. Section 203 of the Employment Rights Act 1996 and section 147 of the Equality Act 2010 require the employee or worker to receive advice from a relevant independent adviser, such as a solicitor holding a practising certificate, on the terms and effect of the agreement. The adviser must be insured and named in the agreement. Without that advice the waiver of statutory claims is void. The only main exception is a settlement reached through Acas conciliation and recorded on a COT3.
02Who pays for the employee's legal advice?
Employers usually contribute towards the employee's legal fees, paid directly to the adviser, because the agreement only works if advice is given. The amount is negotiated and depends on the complexity of the matter. HMRC allows an employer contribution to legal costs on termination without a tax charge where its conditions are met, so the agreement should record the contribution, the payee and its purpose. If the advice becomes more extensive, for example because shares or a regulatory reference are involved, the contribution can be revisited.
03Is a settlement agreement payment tax-free?
Only in part. Contractual payments such as salary, holiday pay and contractual bonus are taxed as earnings. Post-employment notice pay, representing basic pay for any unworked notice, is also taxed and subject to National Insurance. Qualifying non-contractual compensation for loss of employment, together with statutory redundancy pay, is usually tax-free up to a combined £30,000; above that, income tax applies and the employer pays Class 1A National Insurance. Payments for injury to feelings or injury can raise separate questions and should be checked individually.
04Can my employer insist on a confidentiality clause?
Confidentiality is a normal bargaining point, but there are limits. A clause cannot prevent a protected disclosure under whistleblowing law, and since 1 October 2025 a clause cannot prevent a victim of crime in England and Wales disclosing information to the police, qualified lawyers, regulators and specified support services. The Employment Rights Act 2025 contains further powers to restrict confidentiality terms about harassment and discrimination, which are not yet in force. Clauses that go further than the law allows are unenforceable to that extent.
05What is a protected conversation?
It is a discussion about ending employment on agreed terms that, under section 111A of the Employment Rights Act 1996, cannot be used as evidence in an ordinary unfair dismissal claim. It can take place before any dispute exists. The protection does not extend to discrimination, whistleblowing or automatically unfair dismissal claims, and it is lost to the extent the tribunal thinks just if there was improper behaviour, such as undue pressure. Acas recommends giving the employee a reasonable period to consider an offer and allowing them to be accompanied.
06How long does a settlement agreement take to finalise?
A simple exit with agreed figures can be finalised in days once the draft is issued, because the main tasks are the independent advice and signature. Most negotiated exits take a few weeks, allowing time to agree the figure, reference, announcements and covenants. Exits involving discrimination or whistleblowing allegations, regulatory references, equity awards or group parent approvals usually take longer. Acas guidance suggests giving the employee a reasonable period to consider an offer, with ten calendar days cited as a general guide.
07Will the Employment Rights Act 2025 change what my claim is worth?
Potentially, yes. The government has confirmed that from 1 January 2027 the qualifying period for ordinary unfair dismissal falls from two years to six months and the cap on the compensatory award is removed. Employees with between six months' and two years' service will gain a claim they do not have today, and higher earners will no longer be limited to the current cap. The timing of an exit relative to those dates, and the extended tribunal time limits, should be factored into negotiation on both sides.
Sources and official materials
- Employment Rights Act 1996, section 203 — Restrictions on contracting out and settlement agreement conditions
- Employment Rights Act 1996, section 111A — Confidentiality of pre-termination negotiations
- Equality Act 2010, section 147 — Qualifying settlement agreements for equality claims
- Acas: Settlement agreements — Validity conditions, negotiation and confidentiality guidance
- GOV.UK: Tax on termination payments — £30,000 threshold, notice pay and Class 1A NICs
- Victims and Prisoners Act 2024, section 17 — Disclosures by victims that cannot be precluded by agreement
- Employment Rights Act 2025 — Unfair dismissal, time limits and confidentiality reforms
General information only, current as at 21 October 2026. It is not legal advice and does not create a solicitor–client relationship. It reflects the law of England and Wales unless stated otherwise; Scotland and Northern Ireland have separate legal systems, and the law changes frequently. Check current official sources and take advice on the facts of your matter.