A settlement agreement is a legally binding contract between employer and employee. It is only valid if the employee has received independent legal advice. The employer typically contributes to legal fees (£200–£500).

• Employee must receive independent legal advice — agreement is void without it
• Payments up to £30,000 may be tax-free (subject to conditions)
• Waives all employment tribunal claims specified in agreement
• PILON (pay in lieu of notice) is usually taxable
• Reference letter and agreed announcement often included

Legal reference: Employment Rights Act 1996 s.203; Income Tax (Earnings and Pensions) Act 2003 s.403