Settlement Agreements: When Should You Refuse to Sign?

Settlement agreements are a common feature of employment disputes in the UK. They are often presented as a clean and final resolution, offering compensation in exchange for the employee waiving statutory and contractual claims. While they can be an effective tool, they should never be treated as routine. In some cases, signing is plainly against your interests.

A settlement agreement is legally binding once signed. It brings employment and any related claims to an end. There is no appeal and no second opportunity. The question, therefore, is not whether settlement is convenient, but whether the terms properly reflect your position.

The first warning sign is inadequate compensation. A settlement sum should be assessed against the value of the claims being given up. This includes unfair dismissal, discrimination, whistleblowing, unpaid notice, bonuses, and benefits. Where the proposed figure falls materially short of what a tribunal might award, refusal is often justified. Employers commonly start low. That does not make the offer reasonable.

Process also matters. An agreement presented under undue pressure, with artificial deadlines or implied threats, may be open to challenge. While commercial pressure is common, coercion is not. If the agreement is being used to force a rapid exit without proper consideration, caution is required.

Another reason to refuse is where the agreement seeks to waive claims that cannot lawfully be waived, or does so in overly broad or unclear terms. Clauses that purport to extinguish future claims, unknown claims without proper drafting, or rights unrelated to the employment relationship should be treated with suspicion. Poor drafting benefits the employer, not you.

Confidentiality and post-termination restrictions also warrant scrutiny. Non-disclosure clauses that go beyond what is necessary, or restrictions that effectively prevent future employment, may be unreasonable. Settlement should draw a line under the dispute, not impose lasting constraints without proper compensation.

References are frequently overlooked. If the agreement does not provide a clear, agreed reference where one is needed, this may be a decisive omission. Once the agreement is signed, leverage is lost.

Finally, timing is critical. A settlement agreement offered before the employer has followed any fair process may indicate vulnerability on their part. In such cases, refusing to sign may strengthen your negotiating position. Early settlement is not always in the employee’s interest.

Settlement agreements can be an effective resolution, but only on the right terms. Refusal is appropriate where the compensation is inadequate, the drafting is overreaching, the process is unfair, or the agreement fails to protect your future position.

If you have been offered a settlement agreement, independent advice is not only required by law but essential in practice. Contact Hunter Lawyers for a free consultation before you sign.