NHS Settlement Agreements: What to Check Before You Sign

This guide is for NHS staff who have been offered, or are thinking of asking for, a settlement agreement: after a disciplinary, during a capability or sickness process, in a redundancy or restructure, or after a grievance. It explains what the law requires of the document, what is and is not protected in the talks, what a typical agreement contains, and when advice is not optional. FrontlinePay is independent. This is general information, not legal advice, and your union representative or an employment solicitor should see your actual draft.

What a settlement agreement is

Acas describes a settlement agreement as a written, voluntary, legally binding document that sets out terms for settling an employment dispute, such as a potential employment tribunal claim. It used to be called a compromise agreement. It may include a financial payment, an agreed reference, an agreement not to bring a tribunal claim and a confidentiality clause. Employers, workers, former workers and job applicants can all be parties, though claims such as unfair dismissal, constructive dismissal, breach of contract and redundancy pay are limited to employees. Either side can suggest one. People use them to end employment on agreed terms, to settle a dispute while employment continues, or to resolve a claim that is already under way.

A settlement agreement is not the only way to settle. If you reach agreement through Acas early conciliation, Acas writes it up as a conciliation agreement, known as a COT3, which Acas also describes as legally binding, and the case then closes. The rules in this guide on advice and validity are for settlement agreements as described by Acas. If you are offered a COT3, ask your rep what it covers.

What makes a settlement agreement valid

The law sets conditions, and an agreement that misses one does not stop you bringing the claims it appears to waive. According to Acas, the agreement must:

• ✓ Be in writing, not just spoken or agreed over the phone
• ✓ Relate to a specific complaint or claim. It must list the particular claims it covers
• ✓ Be signed after you have had advice from a relevant independent adviser, who must have insurance and be named in the agreement
• ✓ State that these conditions have been met

The adviser is there to protect you, not the trust. They explain what you are giving up, whether the money is fair for the claims you might have, and whether anything is missing. They should be someone with no stake in the outcome. Ask your trade union rep or branch whether they can provide this advice for members, and get their confirmation that they meet the legal requirement. If you are not in a union, contact an employment solicitor.

Protected conversations, 'without prejudice' and what is not covered

Two different protections get mixed up, and the difference matters when you decide what to say in a meeting.

What section 111A does not cover. The Acas Code says it does not apply to dismissals that are automatically unfair, such as those linked to whistleblowing, union membership or asserting a statutory right. It also does not apply to other claims, including discrimination, harassment, victimisation, breach of contract and wrongful dismissal. So if your situation involves a concern you raised or a protected characteristic, do not assume what is said in a settlement meeting is off the record.

Improper behaviour. The Acas Code lists examples that can remove the protection: harassment, bullying or intimidation, threats of violence or crime, victimisation, discrimination, and undue pressure. Undue pressure includes not allowing reasonable time to consider an offer, saying dismissal is certain if you refuse before any disciplinary process has started, or threatening to damage your reputation. Acas also says that explaining the reasons for an offer in neutral terms, or setting out the likely alternatives, including starting a disciplinary process where that is appropriate, is not improper. In other words, being told 'if we cannot agree, we will have to go to a hearing' is not necessarily pressure. Being told 'you will be sacked anyway' before any process has begun may be.

Being accompanied. Acas says there is no legal right to bring someone to a settlement meeting, but it is good practice to allow a work colleague or a trade union rep or official. It adds that an employer may need to allow a companion as a reasonable adjustment for a disabled worker. Ask for your rep to attend. Do not agree anything in the room. Ask for the proposed terms in writing.

How long you get to decide

The Acas Code of Practice on settlement agreements says that, as a general rule, a minimum of 10 calendar days should be allowed to consider the proposed formal written terms and to get independent advice, unless the parties agree otherwise. A calendar day means every day, weekends included. Failing to follow the Code does not by itself make anyone liable, but a tribunal takes it into account. If you are told you must sign by tomorrow, say that you need time to take advice and ask for that in writing. Do not sign under pressure.

What a typical agreement contains, and what to check in each part

Every agreement is different, but these are the parts to find and read line by line.

Tax on the payment

GOV.UK explains that you do not usually pay tax on the first combined £30,000 of statutory redundancy pay, additional severance or enhanced redundancy payments, and non-cash benefits you keep, such as company property. Tax applies above that combined total, and your employer pays employer Class 1A National Insurance on the excess. Some payments are not part of that allowance at all:

• ✕ Unpaid wages, holiday pay and bonuses are taxed as earnings
• ✕ Payments for agreeing to a restrictive covenant are taxed as earnings
• ✕ Payments instead of working your notice, such as pay in lieu of notice, are taxed as earnings. GOV.UK's 'post-employment notice pay' rule can bring part of a termination payment into tax, and your employer works it out

GOV.UK also says that a termination payment made because an injury, illness or disability prevents you from doing your job is not subject to tax or National Insurance. If your exit is health-related, ask your adviser whether that applies to any part of your payment. The tax treatment of a particular payment is for HMRC and a tax adviser to confirm, and a change in how a payment is described can change the tax. Always ask for the breakdown in writing.

NHS points: pension, regulators and approvals

Pension. Leaving does not wipe out your NHS Pension. With two or more years' qualifying membership your benefits can stay in the Scheme as a deferred pension, usually payable from your Normal Pension Age, and NHS Pensions writes to you about this. With less than two years you may be eligible for a refund of your own contributions. If your exit is for ill health, the ill-health retirement rules are separate: see NHS ill-health dismissal and your pension. If the trust is dismissing or may dismiss you for misconduct, see what happens to your pension, references and registration.

Regulators and the DBS. A settlement agreement is a contract between you and the trust. It does not bind the NMC, the HCPC, the GMC or the DBS. The NMC says employers should deal with most concerns locally and refer when it is fair and necessary, and the HCPC says dismissal, suspension, or resignation during an investigation are reasons for an employer to refer. GOV.UK says the DBS duty to refer applies where someone is removed from regulated activity because of harm or risk of harm, even if they resign or leave first, and that failing to refer without reasonable justification is an offence. So an agreement cannot make a legal duty disappear. If a draft says anything about referrals, take legal advice before signing. See fitness to practise explained and what happens when an employer refers to the NMC.

Approvals for payments. NHS Employers publishes guidance on HM Treasury controls on special severance payments, and lists payments reached under a settlement agreement as an example of what is likely to count. Its guidance says approval is needed before an offer is made, in writing or verbally. In practice that can mean a trust needs approval before it can offer anything above what your contract or the law already gives you, which can affect timing and what is on the table. Ask HR whether approval is needed in your case. The rules have been updated since the guidance was first published in 2021, so we do not state thresholds here.

When union or legal advice is vital

The independent advice requirement already makes advice necessary. These are the situations where you should get it earliest and be most careful:

• ✓ You raised a concern about patient safety, bullying or something else, and think the offer is linked to it (whistleblowing and discrimination claims are not covered by the section 111A protection)
• ✓ You are registered with the NMC, HCPC, GMC or another regulator, or work with children or vulnerable adults
• ✓ You are off sick, are disabled, are pregnant or have recently returned from maternity leave, where discrimination claims may be in play
• ✓ A disciplinary investigation is open, or you have been suspended, and the draft mentions it
• ✓ The offer includes a restrictive covenant, a very short deadline or a gagging-style confidentiality clause
• ✓ You are close to a milestone that changes your rights, such as two years' service or a pension age. The unfair dismissal qualifying period falls from two years to six months for dismissals from 1 January 2027, which is not yet in force
• ✓ The payment is large enough that tax treatment matters, or you are not sure how it will affect benefits

Negotiating, or saying no

• ✓ Ask for the offer and every draft in writing, and keep all emails
• ✓ Tell your union rep straight away and ask whether they can act as your independent adviser
• ✓ Ask for the 10 calendar days Acas recommends, and ask the trust to confirm in writing that it is giving them
• ✓ Ask what the payment is made of, and when each part is paid
• ✓ Ask for an agreed reference wording and for the reason-for-leaving wording to be attached
• ✓ Ask for the trust to pay your adviser's fees, and for the agreement to name the adviser
• ✓ Check the list of claims, the pension wording and anything on referrals or live processes
• ✓ Do not sign until your adviser has gone through the final draft. A new draft means new advice

If you decide not to sign, say so politely and in writing, and ask what process continues. Acas says you can refuse an offer or make a counter-offer. Settlement discussions should not affect disciplinary or performance procedures, so a refusal should not, on its own, change how those run. If you want to keep your claim options open, see the time limit calculator above and the appeal guide, because an internal appeal does not stop the tribunal clock either.

Related guides

This page is general information about settlement agreements for NHS staff in England, Wales and Scotland, correct to the best of our knowledge as of 19 October 2026. It is not legal, tax or HR advice. Rules differ in Northern Ireland. Sources: Acas settlement agreements, the Acas Code of Practice on settlement agreements, Acas on confidentiality and on references, GOV.UK on tax on termination payments and on making barring referrals, NHS Employers on special severance payments, NHSBSA, the NMC, HCPC and the GOV.UK Employment Rights Act timeline. Speak to your union rep or an employment solicitor before you sign anything.