Do I Need a Solicitor for a Settlement Agreement?

When you leave a job, your employer might ask you to sign a settlement agreement. Do you need a solicitor for a settlement agreement? In most cases, yes. The law requires you to take independent legal advice before the agreement can waive your employment claims. This guide explains what a settlement agreement is, why advice matters and what to do before you sign.

In this article, we also explain why speaking to a qualified lawyer or specialist employment solicitors is a good idea.

What is a settlement agreement?

A settlement agreement is a written deal between you and your employer. It often follows problems at work, such as a dismissal, a redundancy or a dispute. Before 2013, people called it a compromise agreement. The two terms mean broadly the same thing.

In the agreement, your employer usually pays you an agreed sum. In return, you give up your right to bring certain legal claims against them. This means you agree not to take further legal action over the matters it covers.

The agreement sets out how much money you will receive and when. It also says which employment rights and claims you give up. Because it is a legally binding contract, you must understand every part of it before you sign.

Why the law requires legal advice

A settlement agreement can only waive statutory claims if certain conditions are met. These conditions are set out in section 203 of the Employment Rights Act 1996. They include that:

• The agreement is in writing.

• It relates to a particular complaint or particular proceedings.

• You have received advice from a relevant independent adviser on its terms and effect.

• The adviser has valid insurance or indemnity cover.

• The adviser is named in the agreement.

• The agreement states that the conditions are satisfied.

A relevant independent adviser can be a qualified lawyer, such as a solicitor. It can also be a certified trade union official or an advice centre worker. The adviser must not be acting for your employer. If these rules are not met, the waiver may not work. Acas explains the process in its guidance on settlement agreements.

Why consider a solicitor?

A settlement agreement can look simple. It can still contain many legal terms that are hard to understand. A solicitor explains everything in plain language. Here are some reasons to take advice.

1. Understanding the legal requirements

A solicitor explains the conditions that must be met for the agreement to be valid. They also check that you have the key information about your rights.

2. Independent legal advice

You must receive independent legal advice before you agree to the deal. The advice comes from someone who is not connected to your employer. They help you judge whether the agreement is fair.

3. Avoiding surprises later

A solicitor can spot hidden problems in the agreement. They tell you if you are giving up rights you may need later. For example, you may be giving up the right to bring an employment tribunal claim.

4. Checking your employment claims

A solicitor can advise on whether you have a good claim, for example for unfair dismissal or discrimination. That tells you what your claims are worth, and whether the offer is fair. You can read more about employment tribunal claim steps and about compensation claims for unfair dismissal.

5. Spotting restrictive covenants

Many agreements include restrictive covenants. These limit what you can do after you leave. They may stop you working for a competitor or contacting clients for a set time. A solicitor checks whether these terms are reasonable. They also check any confidentiality clause and any wording about references.

What about legal costs and legal fees?

One worry about hiring a solicitor is cost. Many employers agree to make a contribution towards the legal fees. It is common for the agreement or the offer letter to say that the employer will pay a set amount. This is often a fixed sum, so check if it covers the whole bill.

Some solicitors offer a fixed fee for settlement agreements. They review the document, explain it simply and make sure the legal requirements are met. Ask for the fee in writing before you start.

The price you pay for advice is often small compared with what you may lose if you sign a poor deal. If your employer will not contribute towards your costs, you can still ask.

How do trade unions help?

If you belong to a trade union, you may have extra help. Unions often provide free or low-cost legal advice. They can guide you on whether to sign and whether the deal is fair. Some unions have their own legal experts who can check the document. A certified union official can act as your adviser for the purposes of the law.

What happens during negotiations?

When you negotiate a settlement agreement, you and your employer may differ on what is fair. A solicitor helps you understand your rights. They also help make sure you do not give up something important.

During negotiations, you might ask for:

• A higher sum of money.

• A clear explanation of any conditions that affect you in the future.

• A fair agreed reference.

• A contribution to your legal costs.

• Assurance that you will not lose any important rights.

A good lawyer helps make sure the final agreement is balanced. You should not be forced into a decision you may regret.

What should you do before signing?

Before you sign a settlement agreement, take these steps:

• Seek legal advice: talk to a qualified lawyer or employment solicitors before you decide to sign. They help you understand every detail.

• Read everything carefully: make sure you understand each part. Ask your lawyer to explain confusing words.

• Think about future claims: consider whether you have any claim that you may want to bring later. Your lawyer can advise on whether to sign.

• Check the costs: understand any legal costs involved. Some lawyers offer a free initial consultation, so it is worth asking.

• Check the time you have: the agreement often gives a short deadline. Ask for more time if you need it. Ask your adviser how long you need.

What settlement terms might the agreement include?

Every deal is different. These are common settlement terms that you should check:

• Payment: the sum, the date it is paid and how it is taxed. Some termination payments are tax-free up to a limit set by HMRC, while others are taxed as earnings. Ask your adviser, and your accountant if needed.

• Notice and benefits: what happens to your notice pay, holiday pay, bonus, pension and company benefits.

• References: whether you will receive an agreed reference.

• Confidentiality: a promise not to discuss the deal or the dispute.

• Restrictive covenants: limits on working for a competitor or approaching clients.

• Waiver of claims: a list of the claims you give up, such as unfair dismissal or discrimination.

The wording on waivers matters. A broad waiver can end claims you did not know you had. A solicitor reads it closely and explains what you give up.

How a settlement agreement solicitor helps

A settlement agreement solicitor does more than sign a form. They look at the whole employment relationship and how it ended. They then advise you on your position.

• They explain what the employee agrees to give up, and what they get.

• They compare the offer with what a tribunal might award. See our guide to 2024 employment tribunal compensation limits.

• They negotiate better settlement terms where it is sensible to do so.

• They check the agreement for hidden clauses.

• They sign the adviser's certificate, which makes the waiver valid.

Some people search for compromise agreements and then find nothing. Use the modern term, settlement agreement, when you look for help.

How to choose a solicitor for a settlement agreement

Look for a specialist employment solicitor. They should deal with these agreements often and be able to give you a clear fee. Check that the firm is regulated by the Solicitors Regulation Authority. Use the SRA register. Ask whether they have the right insurance, because the law requires it.

Frequently asked questions

Is a solicitor compulsory for a settlement agreement?

You need independent advice from a relevant adviser. That is often a solicitor. A certified trade union official can also do it.

Can I use my employer's solicitor?

No. The adviser must be independent of your employer. Your employer's solicitor acts for them, not for you.

Can I refuse to sign?

Yes. A settlement agreement is voluntary. Your employer may not like it, but you do not have to agree. Take advice on what could follow.

How long does it take?

A simple review can take a few days. Negotiation can take longer. Ask your solicitor for an estimate.

Do you really need a solicitor for your settlement agreement?

In short, a settlement agreement can change a lot about your future. It is not only about a sum of money. It is about making sure your rights are protected.

Before you sign, take time to understand every part of it. Get help from someone who knows the law well. Then you can feel confident that your decision is the right one for you.

By taking these steps, you give yourself the best chance of making an informed choice. A little help now from a qualified lawyer can save you many problems later.