What should I ask for in a settlement agreement?
AI Overview
When negotiating a settlement agreement, you are essentially trading your right to make an employment tribunal claim for a clean break and financial compensation. You should always ensure the agreement covers adequate financial payouts, favorable exit terms, and legal protections.

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Key areas to negotiate and ask for include:
1. Financial Compensation
Enhanced Severance / Compensation: An ex-gratia (voluntary) payment to compensate for the loss of your job or the distress caused.
Notice Pay: Ensure you receive full pay for your contractual notice period, whether you are required to work it or it is paid in lieu (PILON).
Holiday Pay: Compensation for any accrued, untaken statutory and contractual holiday.
Bonuses & Commissions: Pro-rata or full payment of any earned or anticipated bonuses.
Pension Contributions: Any outstanding contributions, or an equivalent cash lump sum.

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2. Career & Reputation
Agreed Reference: Ask for a specific, agreed-upon reference. You should request that it be attached to the agreement as an annex, so your employer cannot provide a less favorable reference later.

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Reason for Leaving: Agree on how your departure will be communicated internally to colleagues and externally to future employers (e.g., "resigned to pursue other opportunities" or "made redundant").

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Mutual Non-Derogation: A clause stipulating that neither you nor the company (nor its senior executives) will make derogatory comments about each other.

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3. Legal Protections
Legal Fees Contribution: Your employer should cover the cost of you taking independent legal advice on the terms of the agreement. The typical contribution ranges from £350 to £600 plus VAT.

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Tax Indemnity: Ensure the agreement contains a clause stating the employer will indemnify you (cover the costs) if HM Revenue & Customs (HMRC) challenges the tax status of your ex-gratia termination payments.

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Waiver Carries Exceptions: The clause where you waive your right to sue should explicitly exclude accrued personal injury claims, pension rights, and any claims you might have in respect of unvested share options.
4. Practicalities & Restrictions
Release from Restrictive Covenants: If you are bound by strict non-compete or non-solicitation clauses, try to negotiate a reduction or removal of these so you can find new work easily.

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Vesting of Share Options: Request that unvested shares, or Long-Term Incentive Plans (LTIPs), are accelerated or allowed to vest rather than being forfeited.
Company Property: Clarify what happens to company assets (laptops, phones, cars) and ask for the ability to keep your phone number or buy company property at a fair market value.
Because settlement agreements are legally binding, UK law requires you to receive independent legal advice from a qualified solicitor before signing. You can explore options and guidelines on the Acas Settlement Agreements page to better understand your negotiating power before speaking with a lawyer.

What Should I Ask For In A Settlement Agreement?
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Reasons to choose Wilson Browne
Settlement agreements help employers and employees settle disputes or bring periods of employment to an end, on terms that both parties can agree to.
There should be plenty of room for discussion and negotiation to finalise a settlement agreement, and while the employer will make the settlement offer, the employee can make requests to ensure the deal includes certain things.

Therefore, as an employee, what should you ask for in a settlement agreement?

How Does the Process Work?
Your employer can open settlement discussions with you at any time. Before making a settlement offer, they may want to discuss various issues with you first and explain what they’re proposing.

At this discussion stage, you’ll be asked to agree on the terms of your final settlement agreement.

Usually, this involves the employer providing a proposal, outlining the terms of compensation they’re prepared to give you, and giving their reasons for making the settlement offer in the first place.

You should reach an agreement at the end of these discussions about what the written settlement offer will include.

After this, the employer will submit a written offer to you. If you’re happy with it, they will then arrange for a solicitor to draft a formal settlement agreement for both parties to sign.

The entire process of reaching an agreement you can agree on with the employer can take time. ACAS recommends a minimum of 10 days.

What Should You Expect from a Settlement Agreement Offer?
There will be circumstances that are specific to your employment that will determine what your settlement agreement offers, but there are details that all settlement offers should include.

These are:

Settlement payment, and
Non-financial terms.
You should make sure that your written settlement offer includes a full breakdown of the payments that it includes.

It should also be clear whether these are tax-free. Under current rules, you can receive up to £30,000 that won’t be liable for tax. The payment you receive in your settlement is known as ex gratia.

This means that even though the employer is paying you in exchange for your agreement to end your employment, the employer admits no liability.

Any payments you receive over the £30,000 limit are likely to be taxable. You should check with your employer and HMRC if this applies to your settlement agreement.

There can be several factors the employer will look at when putting together your payment offer:

How long you’ve worked for them
The reasons for making the offer
How difficult it would be to replace you
How long it might take you to find a new job
What it would cost to go to a tribunal instead.
The employer may not have considered all these issues, and if you feel that there are factors that need including in payment calculations, you should raise them at this stage.

The whole process should be transparent and open to discussion.

Non-financial Settlement Terms
You should expect to see various non-financial terms in your settlement agreement.

Some of these are for your employer’s benefit, but some are for yours, such as an agreed reference. If the proposed agreement doesn’t include a reference, you should ask for one.

The reference should include details of:

The start and end dates of your employment
Your job title and description of your main duties
An assessment of how you’ve performed these duties
A statement about your timekeeping and integrity as an employee.
There’s no requirement for your employer to provide a favourable reference, only one that’s true. However, depending on your work record, you could negotiate for the reference to include a personal statement from your manager.

A positive reference is a useful tool to help you gain future employment, so it’s worth asking for as part of your agreed settlement terms.

Another common non-financial term is a confidentiality clause, to make sure you don’t disclose details of your settlement, the reason for it, or the amount you’ve received, to anyone else.

This is to protect the employer. They may also wish to include a clause that prevents you from making derogatory comments about them once you’ve stopped working for them.

These are standard and commonplace non-financial terms included in settlement agreements.

What Happens Next?
A settlement agreement can only be legally binding once you’ve taken independent legal advice about it.

The independent adviser you use for this will then be named in the legally binding settlement agreement that you and your employer must sign.

To complete this process, you’ll need to take a written copy of the settlement agreement to a solicitor, who can then go through all the clauses in the agreement.

The solicitor will advise you on the impact the agreement will have on your legal right to pursue any future employment claims, explaining to you the terms of the settlement and their effects. They can also provide advice about specific wording, should you wish to negotiate this further with the employer before signing.



You should be satisfied that you’re getting a fair deal from the settlement. The main role of the solicitor is to advise you and make sure that you’re satisfied with the agreement.

How to get a good deal in a settlement agreement
24 Jul 2025
Danae Shell
This guide applies to Employment Law in England, Scotland and Wales.
If you’re thinking about trying to reach a settlement deal with your employer, it can be hard to know how much to settle for.

It’s super important not to underestimate your ability to negotiate with your employer to get a good deal. At the same time, you need to be realistic about the ballpark figure you can ask for.

Whether your employer has already offered you a settlement agreement, or you’ve only just started thinking about kicking off settlement negotiations for the first time, we'll guide you through how to get a good deal.



If your employer has offered you a settlement agreement
If you’re having a tough time at work, or if there is a redundancy process, your employer might come to you to offer you a settlement agreement.

They might do this in what’s called a “protected conversation” or a “without prejudice conversation”. If this happens, you might be wondering how to play things. Here are some things you should know to help you get started.



You’ll get independent legal advice
For a settlement agreement to be binding, you need to get independent legal advice on it. You should feel empowered to tell your employer that you will take advice, think about what they are offering, and come back to them in due course.

Read our guide on settlement agreements.



You don’t have to accept the first offer
You shouldn’t feel pressured into accepting the first offer that your employer gives you. You want to make sure that you can get as good a deal as possible.

Don’t be afraid to go away and think about your counter-offer. You may find that it actually takes a few rounds of negotiation before you are able to reach agreement.



Don’t be held to a deadline
Don’t let your employer hold you to an artificial deadline to respond to their offer. If they do this, it’s likely that it is just a tactic to try to persuade you to sign as soon as possible without negotiating the terms.



If you are thinking about starting settlement negotiations
If your employer hasn’t yet offered you a settlement agreement, then you need to take the first step to get one negotiated.

Don’t worry - you don’t have to write the agreement yourself! Often your employer will produce the first draft, and in any case, you’ll get legal advice on the terms of the agreement once that is prepared. To get things started, let your employer know that you want to settle, using a “without prejudice” letter. Ideally, in this letter, you should write down the terms you would be prepared to accept.

If you don’t have a specific number in mind at this point, that’s ok too - you can leave this out of the letter. However, it’s still a good idea to do some maths before sending the letter, so that you have a ballpark idea of where your bottom line is before starting negotiations.



Where should I start?
Like any negotiation, it’s often a good idea to start a bit higher than you would be prepared to accept. However, don’t go over the top or you risk your employer not engaging with you at all.

Also, keep in mind that your employer is most likely to want to agree to a settlement at a level that roughly mirrors their financial risk. This includes what an Employment Tribunal might order your employer to pay you if you made a successful claim against them, and their legal fees in defending a claim.

 With that in mind, your starting point for knowing how much to ask for in a settlement agreement should be to think through the following questions.

What might an Employment Tribunal give you if you made a successful claim?
What chance of success might you have at Tribunal?
Are there any non-financial terms that you’d like to ask for?
Finally, what is your gut feeling about a good ballpark figure from your point of view? In other words, how much would you ultimately be prepared to settle for?

How to calculate your settlement figure
Ex gratia payment
A great thing to try and get under a settlement agreement is an ‘ex gratia’ payment. ‘Ex gratia’ comes from the Latin - it means ‘from favour.’ The idea is that your employer is paying you a sum of money that they are not contractually obliged to pay you under your employment contract.

It’s quite common to include an ‘ex gratia’ figure in the settlement agreement. It’s basically a figure that your employer agrees to pay by way of compensation for what has happened to you.

How can I get my employer to agree to an ex gratia payment?
By paying you this sum of money, your employer isn’t admitting to any wrongdoing. From their perspective, however, it means that they are effectively paying you a bit extra to drop your claim or potential claim. This means that they’ll normally take into account how likely they think you are to succeed in an Employment Tribunal case, how much it will cost them to defend it, and what your compensation might be if you win.

For a lot of employers, the threat of having their name in a public judgment, with the Tribunal potentially publicly criticising how they have behaved, is another important consideration for them. By paying an ex gratia payment, they get the chance to avoid that.

All of this means that in many ways, it is in your employer’s interests to agree to an ex gratia payment. They have a lot at stake and if this is what makes the issue go away for them, they will often be prepared to do so.

How should I calculate my ex gratia payment?
If you’re looking to agree to an ex gratia payment, there are no guidelines or limits to how much this might be. However, you should take into account things like:

your loss of earnings
if it’s an unfair dismissal situation, your potential basic award
if it’s a discrimination situation, your potential injury to feelings.
This isn’t an exhaustive list and you should make sure you do some research into the specific employment claims that you might be able to make. Use the ‘Research’ and ‘Goal’ section in your free Valla account to help you do this.



Contractual payments and other financial terms
Does your employer owe you any money under your contract, or are there any other financial terms you want to ask for? If so, you’ll want to include this in your settlement deal. This includes things like:

holiday pay
notice pay
redundancy pay
bonus
a contribution to your legal fees
any other financial issues or other benefits, like a company car or company property, that you would like covered.
How should I ask for different types of compensation?
When you are speaking with your employer, it’s a good idea to actually break down the categories of the different types of compensation you are asking for. For example, if you want £100 for unpaid holiday pay, and £5,000 as an ex gratia payment, then make that clear so that your employer can understand where each figure has come from. This will be important when the settlement agreement itself is drafted, as there are different tax implications for different types of payments.



Non-financial terms
As part of your settlement agreement, do you want any non-financial terms? For example, you might want:

an agreed reference
an agreed announcement to your colleagues or clients
a clause to prevent your employer making derogatory comments about you (it’s common to include this as a mutual obligation).
Think about what else you can offer your employer to sweeten the deal for them. For instance, can you offer to help with handover of projects you are involved in, or can you agree to restrictive covenants if they are worried about you taking business away from them?



Next steps
Go in prepared -  know where you stand legally and what's fair to ask for.

Asking for 3 to 6 months of your gross salary, plus your full notice period, is a common starting point for a settlement agreement. However, the exact amount depends on your specific situation.A settlement agreement payment is usually made up of two parts: what you are strictly owed, plus extra money for giving up your right to sue your employer.1. What You Are Automatically OwedBefore you negotiate anything extra, make sure to add up:Notice pay: Pay for the notice period stated in your contract, if you are not working it.Unused holidays: Pay for any days of annual leave you earned but did not use.Unpaid wages/bonuses: Any owed salary or earned bonuses up to your final day.2. The "Extra" (Compensation)This is where negotiation comes in. The amount you ask for often depends on two factors: How long you have worked there and How badly your employer wants you to leave without a fight.A general rule of thumb used by legal professionals can help guide you:Average payout: 3 to 6 months of gross pay.Strong negotiating position: 6 to 12 months of gross pay.When to Ask for a Higher AmountYou can ask for more money if you have strong grounds to sue your employer for wrongful termination or mistreatment (like discrimination, whistleblowing, or a flawed redundancy process).Employers usually pay a premium to avoid the time, cost, and reputation damage of defending a lawsuit at a labor court, such as the National Industrial Court in Nigeria.How to Calculate Your AskYou can use a simple formula to see how much you should be compensated for unemployment:Total Settlement Ask = Notice Pay + Unused Leave + (Monthly Salary × Expected Months to Find a New Job)Your "Expected Months" depend on your bargaining power.

Understanding Settlement Agreements and Compromise Agreements
Settlement agreements are legally binding contracts between an employer and employee that typically mark the end of an employment relationship. These agreements often involve the employee agreeing not to pursue legal claims against the employer in exchange for a financial settlement and other benefits. But what constitutes a “reasonable” settlement agreement?

To understand whether a settlement offer is fair in your specific circumstances, you may find it helpful to read our settlement agreement advice for employees which explains how independent legal advice can protect your rights and help you assess the terms.

At Hibberts Solicitors in Cheshire, we understand the importance of securing a fair deal. This comprehensive guide will walk you through the key aspects of settlement agreements, helping you determine what’s reasonable in your specific circumstances.

Senior, director-level or high-income role? Settlement agreements at this level often involve higher values, tighter timelines and more complex terms (bonus/commission, equity, restrictive covenants and reputational protections). See our senior & executive settlement agreement advice.

Key Components of a Settlement Agreement
Before diving into what makes an agreement reasonable, it’s crucial to understand the typical elements included in a settlement agreement.

Financial Elements
Termination payments: This is often the core of the settlement, representing compensation for loss of employment.
Notice pay: Payment for your contractual notice period, whether worked or not.
Statutory redundancy pay: If applicable, this is calculated based on your age, length of service, and weekly pay.
Ex-gratia payments: Additional sums offered by the employer.
Often some of these payments can be paid tax-free up to £30,000 (not all of those listed above can be though, specialist advice should be sought from Hibberts Solicitors.

Non-Financial Elements
References: An agreed reference can be crucial for future employment prospects.
Confidentiality clauses: These prevent you and often your employer from discussing the terms of the agreement or the circumstances of your departure.
Non-disparagement clauses: Both parties agree not to speak negatively about each other.
Outplacement support: Some employers offer career counselling or job search assistance.
Restrictive Covenants: We may seek to negotiate the content of any restrictions that you are subject to going forward such as non-compete or non-solicitation restrictions.
Factors Affecting Reasonableness
What’s considered “reasonable” can vary significantly depending on individual circumstances. Let’s explore the key factors that influence this.

Employee-Specific Factors
Length of service: Generally, longer-serving employees can expect higher settlements.
Seniority and salary level: More senior roles typically command larger payouts and the terms are often more complex.
Performance history: Strong performers may have more negotiating power.
Case-Specific Factors
Strength of potential claims: If you have a strong case for unfair dismissal or discrimination, this can increase the settlement value.
Potential compensation at tribunal: The likely outcome if the case went to an employment tribunal is often used as a benchmark.
Reputational risks for the employer: If the case could damage the employer’s reputation, they may offer more to settle quickly and confidentially.
Typical Settlement Agreement Values
While every case is unique, understanding typical settlement values can help you gauge whether an offer is reasonable.

Industry Benchmarks
As a general rule of thumb, settlement agreements often range from three to six months’ salary, plus notice pay. However, this can vary widely based on:

The industry you work in
Your job role and level of seniority
The specific circumstances of your case
Tax Considerations
Remember that not all elements of a settlement agreement are tax-free. Generally:

The first £30,000 of an ex-gratia payment is tax-free
Notice pay, holiday pay, and any other contractual payments are taxable
Understanding the tax implications is crucial when assessing the true value of an offer.

Negotiating a Reasonable Settlement
Securing a fair settlement often requires skilled negotiation. Here are some strategies to help you achieve the best possible outcome.

Preparation and Research
Gather evidence: Collect all relevant documents, including emails, performance reviews, and any evidence of unfair treatment.
Understand your legal position: Research similar cases and potential tribunal outcomes to strengthen your negotiating position.
Negotiation and Compromise Techniques
Don’t accept the first offer: Initial offers are often lower than what an employer is willing to pay.
Consider non-financial benefits: Sometimes, a positive reference or agreement on future employment terms can be as valuable as extra money.
Be prepared to walk away: If the offer isn’t reasonable, be ready to pursue other options, including legal action if necessary.
Obtain specialist legal advice, such as that provided by Hibberts Solicitors employment law team.
Legal Requirements for Settlement Agreements
For a settlement agreement to be legally binding, it must meet certain requirements.

Independent Legal Advice
You must receive independent legal advice on the terms and effect of the agreement. This is typically paid for by the employer and ensures you fully understand what you’re agreeing to.

For personalised guidance on the legal requirements of a settlement agreement, including the independent legal advice you must receive before signing, see our settlement agreement solicitors for employees page.

Statutory Requirements
The agreement must be in writing.
It must relate to a particular complaint or proceedings.
The adviser must be identified in the agreement and have appropriate insurance.
The agreement must state that it meets the statutory conditions regulating settlement agreements.
Common Pitfalls to Avoid
When negotiating a settlement agreement, be wary of these common mistakes:

Accepting the First Offer
Many employees accept the first offer out of fear or a desire to move on quickly. However, initial offers are often lower than what an employer is willing to pay. Don’t be afraid to negotiate.

Overlooking Non-Financial Terms
While the financial settlement is important, don’t neglect other terms that could impact your future. For example, the wording of a reference or confidentiality clauses can have significant long-term implications as can the impact of restrictive covenants, often called post-termination restrictions.

Case Studies
To illustrate what a reasonable settlement might look like in practice, let’s consider two hypothetical scenarios:

Case Study 1: Senior Manager in Finance Sector
Sarah, a senior manager with 15 years of service, was facing redundancy. Given her long service, high salary, and the potential for age discrimination claims, her employer offered:

6 months’ salary as an ex-gratia payment
Full notice pay of 3 months
Agreed reference and outplacement support
Total package value: approximately £120,000
This was considered reasonable given Sarah’s seniority and the strength of her potential claims.

Case Study 2: Long-serving Employee in Manufacturing
John, a factory worker with 20 years of service, was dismissed following a dispute over changes to working hours. His settlement agreement included:

4 months’ salary as an ex-gratia payment
Statutory redundancy pay
Agreed reference
Total package value: approximately £25,000
While lower in monetary value than Sarah’s, this was considered reasonable for John’s role and the circumstances of his dismissal.

Securing a Fair and Reasonable Settlement Agreement
Determining what’s “reasonable” in a settlement agreement isn’t always straightforward. It depends on a complex interplay of factors including your individual circumstances, the strength of any potential claims, and the employer’s motivations. This is where experienced settlement agreement solicitors can make a significant difference.

At Hibberts Solicitors, we have extensive experience in negotiating settlement agreements across various industries and levels of seniority. We can help you assess offers, negotiate better terms, and ensure you receive a truly reasonable settlement.

Remember, while this guide provides general information, every case is unique. For personalised advice tailored to your specific situation, don’t hesitate to contact our expert team.

Frequently Asked Questions About Settlement Agreements
What is the minimum amount for a settlement agreement?
There is no legal minimum. The amount depends on individual circumstances and negotiation.
Can I negotiate a settlement agreement myself?
While possible, it’s advisable to seek legal representation to ensure you get the best possible terms.
How long does the settlement agreement process usually take?
It can vary from a few days to several weeks, depending on the complexity of the case and negotiations.
Will accepting a settlement agreement affect my future employment prospects?
Not necessarily, especially if you negotiate a positive reference as part of the agreement.
What happens if I reject a settlement agreement offer?
You may continue employment, go through a dismissal process, or potentially pursue legal action.
Can I be forced to accept a settlement agreement?
No, settlement agreements are voluntary. You cannot be forced to enter into one, nor can you be put under unreasonable pressure.
Are all payments in a settlement agreement tax-free?
No, only certain elements (usually up to £30,000 of the ex-gratia payment) are capable of being paid tax-free. Specialist advice should be sought as this is a complex area.
How does a settlement agreement differ from a redundancy package?
A settlement agreement is a legally binding contract that typically offers more than statutory redundancy and by signing one, the employee typically waives the right to future bring claims in an Employment Tribunal or any other court.