How to review an employment settlement agreement in England and Wales

A settlement agreement is the way an employee in England and Wales can validly waive statutory employment claims, usually in return for a payment when employment ends. Most employment rights cannot be contracted out of, so the agreement only works if it meets the statutory conditions. This checklist covers those conditions, the commercial terms, and how to review the agreement in Word with LexDraft.

Last checked: 17 October 2026. The law changes; check the current position before relying on this page.

This guide covers the law of England and Wales. Scotland and Northern Ireland have their own rules on several of the points below.

The statutory conditions

Section 203(3) of the Employment Rights Act 1996 sets the conditions for a settlement agreement to stop an employee bringing the statutory claims it covers:

• the agreement must be in writing;
• it must relate to particular proceedings;
• the employee must have received advice from a relevant independent adviser on the terms and effect of the agreement, in particular its effect on their ability to pursue their rights before an employment tribunal;
• there must be a contract of insurance or professional indemnity in force covering the risk of a claim against the adviser for that advice;
• the agreement must identify the adviser; and
• the agreement must state that the statutory conditions regulating settlement agreements are satisfied.

A relevant independent adviser is a qualified lawyer, a certified trade union officer, official, employee or member, a certified advice centre worker, or another person of a description the Secretary of State specifies (section 203(3A)). The employer usually contributes to the employee's legal fees for this advice. Other statutes, such as the Equality Act 2010, have their own similar conditions, so the agreement should list the claims it settles.

Clause checklist

• Termination date and final pay. Salary to the termination date, accrued holiday, and any notice pay.
• Termination payment and tax. The first £30,000 of a genuine termination payment is usually tax-free. Post-employment notice pay is taxed as earnings, and employers pay Class 1A National Insurance on termination payments above £30,000. Check the tax indemnity from the employee and whether it is reasonable.
• Waiver of claims. A list of the particular claims settled. A general waiver of "all claims" may not be effective for statutory claims that are not identified, so list them.
• Warranties from the employee. For example, that they have not committed a repudiatory breach and have no other job offer. Check the consequence of a breach (often repayment).
• Confidentiality. Confidentiality terms have limits. A term is void so far as it stops a worker making a protected disclosure (section 43J), and since 1 October 2025 the Victims and Prisoners Act 2024 makes a term void so far as it stops a victim of crime disclosing information to the police, a qualified lawyer, victim support services and certain others. The Employment Rights Act 2025 will make some confidentiality terms about harassment and discrimination void, but that change is not yet in force. Draft carve-outs that match the law.
• References and announcements. An agreed reference and an agreed internal and external announcement.
• Restrictive covenants. Reaffirming existing covenants, sometimes with fresh consideration.
• Return of property and resignations. Company property, data and any directorships.
• Adviser's certificate. A signed certificate from the adviser confirming the advice and their insurance, usually as a schedule.

Pre-termination conversations

Under section 111A of the Employment Rights Act 1996, offers and discussions made before termination to end employment on agreed terms are generally inadmissible in an ordinary unfair dismissal claim, except where there was improper behaviour. The protection does not cover automatically unfair dismissal or discrimination claims. Acas publishes a statutory Code of Practice on settlement agreements.

Review the settlement agreement in Word with LexDraft

1. Open the settlement agreement in Word, open LexDraft from the Home tab and set the jurisdiction chip to UK: England & Wales (or UK: Scotland or UK: Northern Ireland if that is the governing law).
2. Run the quick checks. They are rule-based and run without AI, catching undefined or unused defined terms, broken cross-references, numbering gaps and inconsistent capitalisation.
3. LexDraft has four built-in playbooks (NDA, SaaS MSA, DPA and services agreement) and no dedicated settlement agreement playbook, so this runs as a general review against the governing law you chose. Use the checklist on this page to direct your own read. Findings are graded Critical, High, Medium or Low, and LexDraft flags standard terms that are missing.
4. Accept or reject each proposed redline. Accepted edits land as native Word tracked changes, ready for the other side.
5. Ask the Assistant to explain a clause in plain English or suggest wording for your side. Answers use UK spelling.
6. Look up any case you want to rely on in the Case law tab, then open the judgment on Find Case Law and read it yourself. UK judgments in LexDraft come from The National Archives' Find Case Law service, which only partially represents the activities of the courts and tribunals. Not every judgment or decision is included. Find Case Law does not include judgments from Scottish or Northern Irish courts or tribunals.

LexDraft does not give legal advice and does not summarise judgments. AI output can be wrong, so qualified counsel must check every redline before it goes out.

Common mistakes

• Missing the statement that the statutory conditions are satisfied, or not naming the adviser.
• Confidentiality clauses with no carve-outs for protected disclosures and disclosures to the police.
• Calling the payment "Severance Payment" in one clause and "Termination Payment" in another. The defined-term check catches this.

This guide is general information, not legal advice. LexDraft does not give legal advice; qualified counsel must review every draft. LexDraft is not affiliated with or endorsed by The National Archives or any court. Spotted something out of date? Email support@lexdraft.ai and we will fix it.