Key terms you need to understand

A settlement agreement sets out the full terms of the deal between you and your employer. It confirms what payments you’ll receive, which claims you’re agreeing to waive, and any ongoing obligations such as confidentiality or returning company property.

The first time you read it, you might feel like you’ve picked up the wrong document, written in the language of a lost civilisation. Think of this part of the guide as a cheat sheet. At its core, it’s still just a deal: you agree not to bring claims, and your employer agrees to pay you or settle matters on defined terms. The rest is legal detail, not inconsequential, just often written in a way that keeps solicitors in business.

Typical clauses you’ll see

Here’s what most agreements include, and what each part actually does.

Termination date and payments

The agreement confirms when your employment ends and what you will be paid. This usually covers:

• outstanding salary

• accrued holiday pay

• notice pay (worked or paid in lieu)

• compensation for loss of employment

• pension contributions (if agreed)

• a contribution to legal fees

• payment timing and bank details

Your agreement should say exactly when payments will be made, either by a fixed date or within a set number of days after signing, usually between 7 and 28. Check those deadlines carefully and make sure your employer has your correct bank details. Make sure the payment schedule works for you, especially if you need the funds quickly for rent, mortgage, or bills.

Each payment should be clearly identified and accurately described for tax purposes.

Interest on late payments

If the draft is silent on interest, ask for “interest on late payment at 8% above the Bank of England base rate.” It focuses minds. Contractual interest is cleaner than relying on court discretion: under section 69 of the County Courts Act 1984, a court can award 8% simple interest, but that’s discretionary and only applies in the civil courts.

Employment Tribunals have separate and more limited powers to award interest, depending on the type of claim, so it’s best to include a clear contractual clause. Doing so avoids debate later and encourages prompt payment.

Waiver of claims

This is the legal heart of the agreement. Once you sign, the waiver limits your ability to bring employment claims later, so it’s vital you understand what you’re giving up.

You receive the settlement package in return for agreeing not to bring claims against your employer. The waiver typically covers:

• statutory claims such as unfair dismissal, discrimination or existing whistleblowing complaints under the Public Interest Disclosure Act 1998

• common law claims such as breach of contract

• sometimes wider claims such as defamation or misuse of data

The waiver can cover existing whistleblowing claims if they’re clearly identified, but it cannot prevent you from making future protected disclosures. Any attempt to restrict future whistleblowing is void and unenforceable. For that reason, most agreements include a regulatory and whistleblowing carve-out within the confidentiality and non-disparagement clauses, confirming that nothing in the agreement stops you from reporting wrongdoing or cooperating with a regulator.

Many settlement agreements include a schedule listing the categories of claim being waived, often citing the relevant legislation such as the Employment Rights Act 1996 (ERA 1996), the Equality Act 2010 (EqA 2010), the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) and the Working Time Regulations 1998 (WTR 1998).

For the waiver to be legally enforceable, section 203 of the Employment Rights Act 1996 requires that it must relate to particular complaints, not just broad categories. Blanket wording like “all claims” is not enough. The waiver also does not usually cover future claims or rights that arise after signing, unless the agreement expressly says so.

Confirmation of legal advice

The agreement must confirm that you have received independent legal advice and name your adviser. Without this, it is not enforceable against you.

Tax and indemnity clauses

These clauses decide how much of your settlement you actually keep after tax. The agreement explains how each payment will be taxed. Typically:

• salary, holiday pay, and notice pay are taxable

• compensation is tax-free up to £30,000 if it is genuine compensation for loss of employment

• pension contributions can be tax-free if paid directly into a registered scheme

Most agreements also include an indemnity clause stating that if HMRC later demands extra tax, you will reimburse the employer. This is standard but it highlights why clear wording matters.

Confidentiality and non-disparagement

Most agreements include confidentiality clauses. You agree to keep the terms private, except when sharing them with key people such as your partner, accountant, or adviser. In return, the employer usually agrees not to make negative comments about you. There are standard carve-outs for legal, tax, or regulatory disclosures, so you can still speak to advisers or report wrongdoing if needed. Breaches rarely go to court, but they can still cause reputational or practical issues.

Return of property and data

You will normally be required to return company property such as laptops, phones, passes, or documents. Many agreements also require you to delete work-related data from personal devices or cloud storage, sometimes with written confirmation.

References and departure statements

Employers aren’t legally obliged to give a reference, so agreeing the wording up front avoids future surprises. Agreements often include terms about references or how your exit will be presented. This might cover:

• an agreed reference letter

• a script for HR when contacted

• what will be said internally about your departure

Agreeing this in advance avoids disputes and gives you some control over how your departure is framed. You’ll usually need to request the agreed reference when a recruiter asks; it’s rarely sent out automatically.

Post-termination restrictions

If your employment contract included PTRs such as non-compete clauses, the agreement may restate them. Sometimes employers add new or extended restrictions, particularly if they are offering extra compensation. Always check whether anything has changed and whether it limits your ability to work elsewhere. If new restrictions are added, they must be supported by separate consideration, often a small additional payment.

Warranties and declarations

Most agreements require you to give certain confirmations, for example:

• that you have not already accepted another job

• that you have not committed gross misconduct

• that you are not aware of undisclosed claims

If a warranty turns out to be false, the employer can usually recover payments and treat it as a debt.

Why every clause matters

Settlement agreements aren’t just about the money. The fine print decides what happens next, from your tax position to your reputation. Most agreements end with wording that they are a “full and final settlement” of claims arising from your employment or its termination. That is the cut-off point: once signed, you normally cannot bring further claims except in limited cases, such as unknown personal injury.

It can be tempting to skim the dense standard sections that are rarely negotiated, the so-called boilerplate clauses lawyers tend to overlook, but be careful. This is often where important details are tucked away. Clauses on tax, warranties, restrictions, or confidentiality can have lasting consequences long after you have left.

Most agreements are drafted by the employer’s lawyers, so the small print usually leans their way.