This guide is maintained as a current resource for July 2026 and covers only the laws of England and Wales. Information is for general guidance, not legal advice. Consult a qualified solicitor for advice specific to your situation.
Comprehensive guide to settlement agreements in workplace discrimination cases in England and Wales. Explains what settlement agreements are, legal requirements, how they waive discrimination claims, confidentiality and negotiation, risks, and practical guidance for employers and employees.
In England and Wales, a settlement agreement is a formal legal mechanism employers and employees can use to resolve disputes, including those involving discrimination. Settlement agreements allow both parties to agree terms, usually including a financial payment, in exchange for the employee waiving the right to pursue certain claims in an employment tribunal or court. In discrimination cases under the Equality Act 2010, settlement agreements must meet specific statutory conditions to be valid and enforceable. This guide explains what settlement agreements are, how they are used in discrimination contexts, the legal requirements and safeguards, procedural issues, risks, and practical guidance for employees and employers.
What Is a Settlement Agreement?
A settlement agreement (previously known as a “compromise agreement”) is a binding written contract between an employer and an employee or former employee. It typically settles a dispute or potential claims arising from employment, such as discrimination, unfair dismissal, breach of contract or other statutory rights. For example, if an employee believes they have been discriminated against because of age, sex, disability, race or another protected characteristic under the Equality Act 2010, the employer may propose a settlement agreement in an attempt to resolve the matter without tribunal proceedings.
Settlement agreements are voluntary and can be negotiated by both parties. They may be proposed at any stage of an employment relationship or following its termination.
Key Legal Requirements
For a settlement agreement to be legally binding, UK law sets out strict statutory requirements under the Employment Rights Act 1996. The main conditions are:
- Written form – The agreement must be in writing.
- Specified claims – It must relate to specific claims or potential claims (for example, discrimination) rather than broad, unspecific future claims. Merely stating “full and final settlement of all claims” is generally not sufficient.
- Independent advice – The employee must receive advice from a relevant independent adviser on the terms and effect of the agreement, including its impact on their ability to bring claims to a tribunal or court.
- Adviser details – The agreement must identify the adviser and confirm that they have appropriate professional indemnity insurance.
- Statutory statement – It must state that the statutory conditions regulating settlement agreements have been satisfied.
Failure to meet these conditions may render the agreement unenforceable, meaning the employee could still pursue a claim at an employment tribunal.
Typical Terms in a Settlement Agreement
Settlement agreements contain a variety of provisions. The most common include:
- Financial compensation – A sum agreed in settlement of potential claims, often negotiated based on the strength of the claims and potential tribunal awards.
- Waiver of claims – The employee agrees not to pursue specified claims in tribunal or court, including discrimination claims covered by the agreement.
- Reference – An agreed form of reference for the employee's future job applications.
- Confidentiality clauses – Terms that restrict disclosure of the existence or terms of the agreement, subject to legal safeguards.
- Mutual non‑disparagement – An agreement by both parties not to make negative statements about the other.
Agreements may also cover termination payments, such as notice pay, redundancy pay, holiday pay and other contractual entitlements.
Settlement Agreements and Discrimination Claims
Waiving Discrimination Claims
The core purpose of a settlement agreement in a discrimination case is to allow an employee to waive specific discrimination claims in exchange for compensation. To be effective, the agreement must specifically identify the discrimination claims it covers. General waivers without specifics may be challenged as ineffective.
For example, if an employee alleges unequal treatment because of disability or race under the Equality Act 2010, the settlement agreement must expressly list those claims to prevent them from being brought to a tribunal later.
Confidentiality and Proposed Legal Reforms
Settlement agreements often include confidentiality clauses that prevent disclosure of terms or background details. However, recent proposed changes to UK law would ban the use of non‑disclosure provisions to silence employees about harassment or discrimination, rendering such clauses void if they seek to prevent workers from speaking publicly about unlawful conduct. These reforms aim to ensure victims can discuss their experiences without legal restriction.
Improper Behaviour in Settlement Discussions
If discrimination or victimisation occurs during settlement negotiations, the discussions may lose their usual confidentiality protections and could be admitted as evidence in tribunal proceedings. Under the Acas Code and related statutory provisions, certain conduct, including discrimination, can be regarded as “improper behaviour,” affecting the confidentiality of discussions.
Process for Reaching a Settlement Agreement
Initiating Discussions
Settlement agreement discussions can begin at any stage and are normally initiated by the employer. These discussions may be “without prejudice” if there is an existing dispute, meaning they generally cannot be used as evidence in tribunal hearings. However, without prejudice protection does not apply if there is no existing dispute, and certain statutory protections (such as section 111A of the Employment Rights Act 1996) apply mainly to unfair dismissal claims, not discrimination claims.
Consideration and Negotiation
Once a written proposal is made, employers should allow employees a reasonable period to consider the terms and seek independent advice (commonly a minimum of 10 calendar days). Both sides can negotiate terms including compensation and any additional benefits.
Independent Advice
Employees must obtain independent legal advice on the agreement. A qualified adviser will explain the legal effects, including what claims are waived and what rights remain, and this advice must be documented in the agreement to satisfy statutory requirements.
Practical Risks and Considerations
Voluntary Nature
Settlement agreements are voluntary. Neither party is obliged to accept an offer, and employees can negotiate for better terms. Employers should not exert undue pressure or threaten dismissal solely to secure agreement, as this may amount to improper behaviour or even a separate claim.
Scope of Claims Waived
An agreement cannot lawfully waive certain claims, such as rights to enforce the settlement agreement itself or some statutory rights outside employment tribunal jurisdiction. Agreements must be carefully drafted to avoid unintended exclusions or inclusions.
Evidence and Tribunal Proceedings
Although settlement discussions are generally confidential and not admissible in tribunals, if improper conduct (including discrimination) occurs during negotiations, these communications could be used as evidence. Awareness of this risk is important for both parties during negotiations.
Independent Advice and Costs
While employees are entitled to independent legal advice, employers often agree to cover reasonable adviser fees. The adviser checks that employees understand their rights and the implications of waiving claims.
Common Questions
Can a settlement agreement prevent all discrimination claims?
Only claims specifically listed in the agreement can be waived. Unspecified claims or those arising after the agreement are generally not covered.
Are settlement agreements compulsory?
No. Settlement agreements are voluntary and both parties must agree to the terms. Neither side can be forced to enter one.
Can I still discuss misconduct after signing?
Under proposed reforms, confidentiality clauses that seek to prevent discussion of harassment or discrimination will be void, allowing employees to speak about those matters. This aims to prevent silencing of victims.
Final Thoughts
Settlement agreements are a useful tool in resolving workplace discrimination disputes in England and Wales, providing a structured way to agree terms and avoid the uncertainties of tribunal litigation. They must meet strict legal requirements, including written form, independent advice and clear identification of claims being waived. Both employees and employers should approach negotiations carefully, mindful of confidentiality rules, potential evidence issues and the voluntary nature of the process. Understanding these factors helps parties make informed decisions and address workplace discrimination matters effectively.
