Common mistakes to avoid when offering a settlement agreement

Settlement agreements are a practical and commercial way to bring an employment relationship to an end — but they need to be handled properly and with care. If you get the approach wrong, what should be a straightforward process can quickly become complicated.

How and when you make an offer matters — even small missteps can lead to disputes, delays, or reputational issues. In this article, we look at the most common mistakes employers make when offering a settlement agreement and how to avoid them. 

This article is for general guidance only. For tailored legal advice, contact our employment solicitors today.

Failing to set the right legal context

One of the most common errors is making a settlement offer too early or without the proper protections in place. Unless the conversation qualifies as a "protected conversation" under section 111A of the Employment Rights Act 1996 — or falls within the scope of "without prejudice" rules — anything you say could later be used as evidence in a tribunal.

Protected conversations only apply to ordinary unfair dismissal cases and can be lost if there's improper behaviour. If there’s any potential for discrimination or whistleblowing to be claimed, you'll need to rely on "without prejudice" rules  instead.  Technically, for this to apply, however, there needs to be an existing dispute. So if a conversation comes out of the blue, it may be difficult to say it is genuinely “without prejudice”

Not allowing enough time or legal advice

For a settlement agreement to be legally binding, the employee must receive independent legal advice. Trying to rush this process or suggesting that advice is just a formality can result in the agreement being unenforceable.

Employers should give a reasonable amount of time — the Acas Code suggests at least 10 calendar days. While there's no absolute rule, undue pressure or deadlines that feel coercive may lead the employee to argue they were forced into signing.

Presenting the offer as non-negotiable

Even if the terms are intended to be final, presenting a settlement offer as non-negotiable or suggesting there's no alternative can amount to improper behaviour — particularly where the employee is being asked to waive legal rights.

Settlement agreements are supposed to be voluntary. If an employer creates an atmosphere of pressure or threat (for example, saying "sign or be dismissed"), it could affect the validity of the agreement and increase the risk of claims.

Offering a settlement agreement before internal processes are complete

In some cases, employers offer a settlement agreement before a disciplinary or grievance process has run its course. While this can be appropriate in some circumstances, it needs to be carefully managed. If the employee feels their concerns were ignored or the process was cut short unfairly, they may refuse to sign and raise a claim regardless.

Timing is key. If a disciplinary process is likely to result in dismissal, it may be worth waiting until that point to raise the option — or, if raised earlier, being clear that the formal process would still be followed in parallel.

Missing key terms or mishandling payments

A settlement agreement needs to set out exactly what is being paid — and why. That includes notice pay (and whether it's paid in lieu), holiday pay, any redundancy or ex gratia sums, and whether payments are taxable. 

It's also essential to ensure payroll and finance teams are clear on the breakdown and timing of payments once the agreement is signed. A delay in payment, even if unintentional, can undermine trust and expose the business to a breach of contract claim.

Forgetting confidentiality and reputational clauses

Most employers include confidentiality clauses in their settlement agreements, covering both the terms of the agreement and the circumstances surrounding the employee's departure. But these clauses need to be carefully worded — especially where the employee may have raised protected disclosures or allegations.

You may also wish to include clauses dealing with not making disparaging comments, internal or external announcements, and agreed references. Leaving these out is a common oversight and can create issues later if the relationship breaks down further.

Using a one-size-fits-all template

Off-the-shelf templates rarely reflect the specific risks, dynamics, or legal issues at play. Settlement agreements involving senior executives, share options or restrictive covenants require more tailored drafting — as do those involving sensitive or contested departures.

Trying to save time or money by using a generic form can result in key issues being overlooked, which may cost far more to fix later.

Why it pays to get it right

Settlement agreements can save time, cost, and uncertainty — but they need to be handled carefully to achieve their purpose.

Matthew Irvine, senior associate solicitor and head of employment, says:

“Settlement agreements can be an effective way to bring closure to an employment relationship, but even small mistakes can cause them to unravel. The timing, the way an offer is put forward, and the detail of the terms all matter. If these are mishandled, the business can end up facing the very claims it hoped to avoid.”

If you're considering offering a settlement agreement, our employment solicitors can guide you through the process and help prepare a legally sound, commercially appropriate agreement tailored to your circumstances. 

Get in touch to speak with our team.