exitagreementWhat is in a settlement agreement, clause by clause
Ten other pages on this site explain what a settlement agreement does. This one goes through what it says. Most of a UK draft is contract, which means most of it is negotiable — but a small statutory skeleton runs through it, and that part is not.
The sixteen clauses, and which kind each one is
Work down the third column first. It is the only one that tells you where to spend your attention.
| Clause | What governs it | Fixed or negotiable |
|---|---|---|
| Parties and termination date | Contract. The termination date drives notice, holiday accrual and which tax year the payment falls in. | Check, rarely argue |
| The payments, split into parts | Contract, but the tax follows the substance. ITEPA 2003 s.403(1). | Negotiable — and the split matters as much as the total |
| Tax indemnity | Contract. Usually one-way: you indemnify the employer if HMRC reassesses. | Negotiable. Ask whether it is mutual and whether it is capped |
| Waiver of claims, listed by name | ERA 1996 s.203(3). The agreement must relate to the particular proceedings. | Read every line. A claim not named may not be settled |
| Equality Act complaints, named separately | EqA 2010 s.147 — a different section with its own conditions. | If discrimination is in play and this is missing, ask why |
| Adviser’s certificate | ERA 1996 s.203(3) and (e): the adviser must be insured and named. | Fixed. Without it the waiver does not bind you |
| Statement that the conditions are satisfied | s.203(3)(f). The document has to declare its own compliance. | Fixed. Its absence is a defect |
| Confidentiality | Contract — but void so far as it touches a protected disclosure, ERA 1996 s.43J. | Negotiable. Ask for carve-outs in writing |
| Non-derogatory statements | Contract. Most drafts bind only you. | Negotiable. Asking for it to run both ways is normal |
| Agreed reference and announcement | Contract. Costs the employer nothing. | Negotiable and frequently given away |
| Restrictive covenants | Common law, not statute. The agreement may restate, release or shorten them. | Negotiable. Release has real value and no published price |
| Warranties | Contract. You promise things are true — no other offer, no wrongdoing. | Read carefully. This is where repayment clauses attach |
| Repayment or clawback | Contract. Triggered by breach of a warranty or of confidentiality. | Negotiable. Ask what triggers it and whether it is proportionate |
| Reaffirmation certificate | Derives from s.203(3)(b): claims arising after signature were never settled. | Fixed if you sign before leaving. Diarise it — payment usually depends on it |
| Carve-outs: pension, personal injury, accrued rights | Pension auto-enrolment rights cannot be contracted out at all, Pensions Act 2008 s.58. | Check they are excluded by name |
| Governing law and jurisdiction | Contract. England and Wales, or Scotland. | Matters only if the money is not paid |
Every provision named above is linked to its text on legislation.gov.uk. Clauses shown as “contract” have no statutory basis at all, which is precisely why they are the negotiable ones. Checked 19 September 2026.
If you read nothing else
- Only six things are fixed, and they are the six conditions in s.203(3). Everything else is somebody’s drafting choice.
- The waiver list is the document. A claim not named in it may not be settled by it.
- The confidentiality clause cannot reach a protected disclosure — void to that extent under s.43J, whatever it says.
- The tax indemnity is usually one-way. It is the clause most worth asking to amend and the one people read last.
- Pension auto-enrolment rights cannot be contracted out at all, and a void waiver does not let the employer take the money back.
The statutory skeleton
Six conditions, in one subsection. Miss any one and the waiver of your tribunal rights is void rather than merely weak — and the employer has paid for nothing.
The same diagram as a table
| Sub-section | Condition |
|---|---|
| (a) | The agreement must be in writing |
| (b) | The agreement must relate to the particular proceedings |
| (c) | The employee or worker must have received advice from a relevant independent adviser as to the terms and effect of the proposed agreement |
| (d) | There must be in force, when the adviser gives the advice, insurance or a professional indemnity covering the risk of a claim in respect of that advice |
| (e) | The agreement must identify the adviser |
| (f) | The agreement must state that the conditions regulating settlement agreements under the Act are satisfied |
Read section 203 on legislation.gov.uk. Territorial extent as printed on the source: England, Wales and Scotland.
Why the document declares its own compliance
Condition (f) is the one that makes settlement agreements read the way they do. The agreement has to state that the conditions regulating settlement agreements under the Act are satisfied. That is why there is a paragraph near the end reciting the statute back at itself. It is not padding; it is a condition.
Why the adviser is named in it
Conditions (c), (d) and (e) work together: you must receive advice from a relevant independent adviser, that adviser must be insured at the moment the advice is given, and the agreement must identify them. That is the origin of the certificate your solicitor signs, and the reason a friend who happens to be a solicitor is a bad idea unless they carry cover for this work. Who pays for that advice.
The waiver list is the whole document
Everything else is machinery around one paragraph: the list of claims you agree not to bring. Section 203(3)(b) requires the agreement to relate to the particular proceedings, which is why the list is long and specific rather than a blanket release.
A blanket waiver does not work
Acas is explicit that an agreement would not be valid if it said simply that it was in full and final settlement of all claims. The specificity is the point. If you read the list and something you actually have is missing, that is worth raising — usually in your favour, occasionally not.
The Equality Act needs its own mention
This is the single most consequential drafting point on the page. A discrimination complaint is not settled by section 203 at all; it needs a qualifying settlement agreement under EqA 2010 s.147, which has its own conditions and a wider exclusion of connected advisers. A document that lists twenty claims under the 1996 Act and never mentions the Equality Act has not settled your discrimination claim, however comprehensive it looks. The detail.
Confidentiality, and what it cannot reach
A confidentiality clause is normal and generally enforceable. It is also subject to a statutory limit that operates whether or not the draft acknowledges it.
(1) Any provision in an agreement to which this section applies is void in so far as it purports to preclude the worker from making a protected disclosure. (2) This section applies to any agreement between a worker and his employer (whether a worker’s contract or not), including an agreement to refrain from instituting or continuing any proceedings under this Act or any proceedings for breach of contract.Read the section on legislation.gov.uk
What counts as a protected disclosure
The definition is in a different section, and it is broader than most people assume.
In this Part a “qualifying disclosure” means any disclosure of information which, in the reasonable belief of the worker making the disclosure, is made in the public interest and tends to show one or more of the following— (a) that a criminal offence has been committed, is being committed or is likely to be committed, (b) that a person has failed, is failing or is likely to fail to comply with any legal obligation to which he is subject, (c) that a miscarriage of justice has occurred … (d) that the health or safety of any individual has been, is being or is likely to be endangered, (da) that sexual harassment has occurred, is occurring or is likely to occur, (e) that the environment has been, is being or is likely to be damaged, or (f) that information tending to show any matter falling within any one of the preceding paragraphs has been, is being or is likely to be deliberately concealed.Read the section on legislation.gov.uk
Note limb (da). Sexual harassment appears on the face of the qualifying-disclosure list, alongside criminal offences, breaches of legal obligation, health and safety, and miscarriages of justice.
What to ask for anyway
You do not need the carve-out for the clause to be void to that extent — s.43J does that by itself. Asking for it in writing is still worth doing, for two reasons: it removes any doubt about what you may say to a regulator or the police, and the answer tells you something about who drafted the document. A draft that already carves out protected disclosures, regulators and your immediate family has had proper attention.
Want someone to read the clauses rather than the summary?
That is exactly what a sign-off appointment is, and your employer usually pays for it. Send your postcode and the deadline you have been given.
The money clauses, and where the tax actually lands
The same diagram as a table
| Part | What it covers | Amount | Tax treatment |
|---|---|---|---|
| Part 1 — contractual | Notice pay, holiday pay, unpaid wages, bonus or commission | £8,400 | Income tax and National Insurance in full |
| Part 2 — ex gratia | Statutory redundancy pay, compensation for loss of employment, injury to feelings | £21,000 | First £30,000 free of tax and National Insurance |
| Total | — | £29,400 | — |
Threshold figure: Income Tax (Earnings and Pensions) Act 2003, s.403(1). Illustrative amounts.
The split is a drafting choice with a fixed consequence
How the payment is divided between the two parts is written into the agreement, but the tax does not follow the labels. The post-employment notice pay rules calculate the notice element arithmetically from your contract and your dates, and treat it as earnings whatever the document calls it. ITEPA 2003 s.402D. How that works.
The tax indemnity is the clause people read last
Almost every agreement contains one, and almost every one runs in a single direction: if HMRC later decides more tax was due, you reimburse the employer. It is not unreasonable in principle — the employer cannot control your other income — but the version in the draft is usually wider than it needs to be.
Three things worth asking. Is it capped? Does it exclude tax arising because the employer misallocated the payment between the two parts? And does it cover interest and penalties, or only the tax itself? None of those is an unusual request.
Repayment and clawback
The repayment clause is normally tied to the warranties and to confidentiality. The questions are the same shape: what exactly triggers it, is it the whole payment or a proportion, and does it survive if the breach is trivial. A clause that claws back the entire sum for any breach of any warranty is a drafting position, not a law of nature.
Warranties: the promises you are making
Buried in the middle of most drafts is a list of things you warrant to be true. Typically: that you have not already issued a claim, that you have not committed a repudiatory breach of contract, that you have returned all property, and that you have not accepted or been offered another job.
The one that catches people
The new-job warranty. Someone who has quietly accepted an offer elsewhere and warrants that they have not is exposed under the repayment clause. If a warranty in the draft is not true for you, the answer is to have it amended before signature, not to sign it and hope nobody checks.
Why the warranties exist at all
They are the employer buying certainty about facts they cannot verify. Read in that light, most of them are reasonable and a few are overreaching, and telling the difference is a large part of what the sign-off appointment is for.
What cannot be given away, whatever you sign
Some rights survive the document. Two of them have statutory backing that is worth reading.
Pension auto-enrolment rights:
Any provision in any agreement (whether a worker’s contract or not) is void in so far as it purports— (a) to exclude or limit the operation of any provision of this Part, or (b) to preclude a person from bringing proceedings under section 56 before an employment tribunal. The fact that an agreement is to any extent void under subsection (1) does not entitle the employer to recover any property transferred, or the value of any benefit conferred, as an inducement to enter into, or otherwise in connection with, the agreement.Read the section on legislation.gov.uk
The sentence in there that nobody quotes
Subsection (2). Where an agreement is void to any extent under that section, that “does not entitle the employer to recover any property transferred, or the value of any benefit conferred, as an inducement to enter into … the agreement”. In other words: a waiver failing does not mean handing the money back. That is a useful thing to know before you worry about raising a defect in the draft.
The conventional carve-outs
A well-drafted agreement also excludes, by name, accrued pension rights, personal injury claims you do not yet know about, and the right to enforce the agreement itself. Their absence is not fatal but it is a sign of an old template. Ask for them.
Where to spend the negotiation
The third column of the table at the top sorts this for you, and the answer is rarely the headline figure alone.
| Where people spend effort | Where the return usually is |
|---|---|
| Arguing the notice and holiday figures | Checking them. They are arithmetic — errors are common, arguments are not productive |
| Asking for a round-number increase | Asking for the reference, the announcement wording and a covenant release, which cost the employer nothing |
| Reading the waiver list last | Reading it first. It is the only clause that decides what you are giving up |
| Ignoring the tax indemnity | Capping it and excluding the employer’s own misallocation |
How to run the negotiation itself · What the figure should be · How long you have to do all this
Common questions
What is actually in a settlement agreement?
Sixteen clause types in most UK drafts, of which only a handful are fixed by statute. The statutory ones are the waiver, the adviser's certificate and the statement that the conditions are satisfied — those come from section 203(3) of the Employment Rights Act 1996 and the agreement does not bind you without them. Everything else is contract, which means everything else is in principle negotiable.
Is there a standard settlement agreement template?
No official one. Firms work from their own precedents, which is why two agreements for identical situations can read very differently. What is standard is the statutory skeleton: in writing, relating to the particular proceedings, independent advice, that adviser insured, the adviser named, and a statement that the conditions are met.
What is the tax indemnity clause?
A promise that if HMRC later decides more tax was due on the payment, you will reimburse the employer. It is close to universal and it is usually one-way. It is worth asking whether it can be made mutual, whether it is capped, and whether it excludes tax arising from the employer's own misallocation of the payment between the two parts.
Can a settlement agreement stop me speaking about what happened?
Only up to a point. A confidentiality clause is enforceable in general, but section 43J of the Employment Rights Act 1996 makes any provision void in so far as it purports to preclude a protected disclosure. Section 43B defines what qualifies, and the list includes criminal offences, failures to comply with a legal obligation, health and safety, and sexual harassment.
What are warranties and why do they matter?
Statements you promise are true — typically that you have not already started a claim, have not committed a repudiatory breach, and have not accepted another job. They matter because the repayment clause is usually tied to them. A warranty you cannot honestly give is a reason to amend the draft rather than to sign and hope.
What is a reaffirmation certificate?
A second signature after your employment ends. It exists because s.203(3)(b) requires the agreement to relate to the particular proceedings, and claims that did not exist at first signature cannot have been settled then. It is normal — but payment is often conditional on it, so a forgotten reaffirmation is a stalled payment.
Can they claw the money back?
Only if a clause says so and its trigger is met, which is normally breach of a warranty or of the confidentiality terms. There is one statutory limit worth knowing: where a waiver is void under section 58 of the Pensions Act 2008, that Act says the voidness does not entitle the employer to recover what was transferred as an inducement to enter the agreement.
Which clauses are worth spending my negotiation on?
The ones that cost the employer least and are worth most to you: the agreed reference, the announcement wording, release or narrowing of restrictive covenants, and a larger contribution to your legal fees. Those come out of nobody's budget, which is why they are granted more often than an increase in the headline figure.
Sources cited on this page
- Employment Rights Act 1996, s.203 — conditions for a valid settlement agreement
- Employment Rights Act 1996, s.43J — contractual duties of confidentiality
- Employment Rights Act 1996, s.43B — disclosures qualifying for protection
- Equality Act 2010, s.147 — qualifying settlement agreements
- Pensions Act 2008, s.58 — restrictions on agreements to limit Part 1
- Income Tax (Earnings and Pensions) Act 2003, s.403 — the £30,000 threshold
- Income Tax (Earnings and Pensions) Act 2003, s.402D — post-employment notice pay
- Acas — Settlement agreements
Every figure above was read from the source it is attributed to on 19 September 2026. How we check this.
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