Reference

Glossary of UK settlement agreement terms

Plain-English definitions for the words and section numbers that turn up in a UK settlement agreement, from the adviser certificate to the waiver clause.

Written to our editorial standard by RGF Lawyers; solicitor review pending|SRA No. 8004856|Last edited: 21 August 2026

What do these settlement agreement terms mean?

This glossary explains the words, abbreviations and section numbers that most often appear in a UK settlement agreement or in the employment tribunal process around one, in plain English rather than legal drafting. Where a term carries a current statutory figure, such as Vento bands or statutory redundancy pay, the entry links to the page that holds the up-to-date number rather than quoting one here.

A

ACAS early conciliation: A compulsory step before most employment tribunal claims: you notify ACAS, who offer to help you and your employer settle without a hearing. It usually lasts up to six weeks and pauses the tribunal clock. Many settlement agreements are reached during, or shortly after, this process.Read more · Read more
Agenda for Change section 16: The section of the NHS's Agenda for Change terms and conditions handbook covering redundancy pay, which is generally more generous than the statutory scheme. It sets out how reckonable service is counted and how the enhanced payment is calculated for NHS staff facing redundancy or an exit settlement.Read more
Agreed reference: A reference whose exact wording is fixed in the settlement agreement itself, usually attached as a schedule, so your employer cannot later give a different or unfavourable account. A vague promise of a "reasonable" reference is not the same thing and is far weaker protection.Read more

B

Basic award(Employment Rights Act 1996, s.119): The compensation an employment tribunal awards for a successful unfair dismissal claim, calculated the same way as statutory redundancy pay: a formula based on age, weekly pay (subject to a statutory cap), and length of service, up to a maximum of 20 years' service.Read more

C

Clawback: A clause letting your employer reclaim some or all of a settlement payment if you breach the agreement afterwards, most often by breaking confidentiality or a restrictive covenant. Clawback terms should be read carefully: some apply to the whole payment, others only to a specific element such as a bonus.
Compensatory award(Employment Rights Act 1996, s.123-124): The second element of an unfair dismissal award, on top of the basic award, meant to compensate for actual financial loss such as lost earnings and lost benefits. It is subject to a statutory cap, reviewed each April, and this is one of the figures negotiators weigh a settlement offer against.Read more
Compromise agreement(Enterprise and Regulatory Reform Act 2013, s.23): The name used for a settlement agreement before 29 July 2013, when section 23 of the Enterprise and Regulatory Reform Act 2013 renamed it. It is the same document with the same legal effect; a compromise agreement signed before the rename is still valid, and the independent-advice requirement that makes it binding has not changed.Read more
COT3: The form used to record a binding settlement reached through ACAS, whether that is early conciliation or later involvement. A COT3 achieves the same legal effect as a settlement agreement, waiving specified claims, but through ACAS rather than the section 203 route, and does not need a solicitor's certificate.Read more
CSCS: The Civil Service Compensation Scheme, which sets the tariffs for compulsory and voluntary redundancy across most of the civil service, subject to caps in the scheme rules. Voluntary exit terms under CSCS are generally more generous than compulsory redundancy terms, which is why departments often run a voluntary window first.Read more

E

EDT (effective date of termination)(Employment Rights Act 1996, s.97): The date your employment legally ends, which starts the clock on the three-month-less-one-day deadline for most tribunal claims. It can differ from your last working day, for example where you are on garden leave, so it needs to be checked precisely, not assumed.
Enhanced redundancy pay: Redundancy pay above the statutory minimum, either because your contract or a company policy provides for it, or because it forms part of a negotiated settlement package. There is no fixed formula: the amount depends entirely on what your employer offers or agrees, unlike the statutory scheme.Read more
Ex gratia: A payment made "as a gift", not because your employer is contractually obliged to pay it, which is why a genuine ex gratia sum can qualify for the £30,000 tax-free termination payment exemption. It is usually the most negotiable part of a settlement offer, reflecting the value of claims you are waiving.Read more · Read more

F

Full and final settlement: Wording confirming that the payment in the agreement settles every claim listed, and that you will not bring a further claim covering the same matters afterwards. It is the practical effect of the waiver clause, expressed as the overall purpose of the document rather than a clause of its own.Read more

G

Garden leave: A period during your notice when your employer tells you not to come into work, or not to carry out your normal duties, while you remain employed and paid and stay bound by your contract, including confidentiality and any restrictive covenants. It differs from PILON, which ends the employment immediately.Read more

L

LGPS strain cost: The extra cost a council or public body pays into the Local Government Pension Scheme when it allows early, unreduced pension access on redundancy, usually for members aged 55 or over. This cost is a real factor in whether an employer offers an enhanced settlement, because it is a cash outlay to the employer beyond the redundancy payment itself.Read more

M

MARS (Mutually Agreed Resignation Scheme): A discretionary NHS exit scheme run under Section 20 of the NHS Terms and Conditions Handbook, under which staff resign by mutual agreement in exchange for a locally-set payment. NHS Employers is explicit that MARS is not a redundancy, so it carries neither Section 16 redundancy pay nor the early-retirement-on-redundancy pension route. Where a settlement agreement is used alongside a MARS exit, it is a separate legal document that waives claims, not the scheme itself, and terms vary between trusts.Read more

N

Non-compete: A type of restrictive covenant preventing you from working for a competitor, or in a competing business, for a set period after you leave. Non-compete clauses are only enforceable if they go no further than necessary to protect a genuine business interest, so an overly broad one can often be challenged or narrowed.Read more
Non-solicit: A restrictive covenant stopping you from approaching your former employer's clients, customers, or staff for a set period after leaving, to persuade them to move business or employment elsewhere. Like other restrictive covenants, it must be reasonable in scope and duration to be enforceable.Read more

P

PENP (post-employment notice pay)(ITEPA 2003, s.402D): A statutory formula that decides how much of a termination payment is treated as taxable earnings rather than a tax-free ex gratia sum, applying since April 2018 regardless of whether your contract has a PILON clause. It affects the split between the taxed and tax-free elements of your settlement.Read more · Read more
PILON (payment in lieu of notice)(ITEPA 2003, ss.402A to 402E): A payment your employer makes instead of requiring you to work your notice period, ending your employment immediately rather than at the end of notice. Since April 2018, all PILON is taxable as earnings under the PENP rules, whether or not your contract contains a PILON clause.Read more
Protected conversation(Employment Rights Act 1996, s.111A): A settlement discussion your employer can open under section 111A of the Employment Rights Act 1996 without there needing to be an existing dispute. It protects the conversation from being used as evidence in an ordinary unfair dismissal claim, but not in claims such as discrimination or automatic unfair dismissal.Read more
Protective award(Trade Union and Labour Relations (Consolidation) Act 1992, s.189): Compensation a tribunal can order, up to 90 days' pay per affected employee, where an employer fails to properly consult on collective redundancies of 20 or more staff at one establishment. It is separate from, and additional to, individual redundancy or unfair dismissal compensation.Read more

R

Relevant independent adviser(Employment Rights Act 1996, s.203(3)(c)-(e)): The person legally required to advise you before a settlement agreement can be valid: typically a solicitor, but also a barrister, a certified and authorised trade union official, or a certified advice centre worker. They must be independent of your employer and covered by professional indemnity insurance.Read more
Restrictive covenant: A clause limiting what you can do after leaving, most commonly a non-compete, non-solicit, or non-poach restriction. Restrictive covenants are only enforceable to the extent needed to protect a legitimate business interest, so broad, long, or vague ones can often be challenged.Read more

S

s.111A(Employment Rights Act 1996, s.111A): Shorthand for section 111A of the Employment Rights Act 1996, the provision behind a protected conversation. It lets an employer raise the possibility of a settlement agreement even where there is no existing dispute, without that conversation being used as evidence in an ordinary unfair dismissal claim.Read more
s.203(Employment Rights Act 1996, s.203): Shorthand for section 203 of the Employment Rights Act 1996, the provision that makes a settlement agreement legally valid, provided six conditions are met, including that it is in writing and you have received independent legal advice. Without meeting s.203, an agreement cannot waive your statutory employment rights.Read more
Statutory redundancy pay(Employment Rights Act 1996, s.162): The legal minimum payment for employees with two or more years' service made genuinely redundant, calculated from age, length of service, and weekly pay, which is capped and reviewed annually. It forms the statutory floor that any settlement offer in a redundancy situation should cover.Read more
Subject to contract: Wording used to keep negotiations non-binding while terms are discussed, so that neither side is committed until a final agreement is signed. In settlement negotiations it lets both parties explore figures and terms without either being locked in prematurely.

T

Tax indemnity: A clause requiring you to repay your employer, or HMRC directly, if the tax treatment applied to your settlement payment later turns out to be wrong, for example if HMRC decides more of the payment should have been taxed. It shifts the risk of a tax dispute onto you, so the underlying tax split matters.Read more
TUPE(TUPE 2006 (SI 2006/246)): The regulations that protect employees' terms and continuity of employment when a business, or part of it, transfers to a new employer, such as when a contract is outsourced or a company is sold. Dismissing someone because of a TUPE transfer is usually automatically unfair, which is relevant if a settlement agreement follows one.Read more

V

Vento bands: Guideline bands, set by Presidential Guidance and updated each year, for injury-to-feelings awards in discrimination claims: a lower band for less serious cases, a middle band for cases that do not merit the top band, and an upper band for the most serious, with exceptional cases going above that.Read more · Read more
Voluntary Exit Scheme: A scheme, common in the public sector and civil service, inviting staff to apply to leave voluntarily in exchange for a compensation payment, usually run before any compulsory redundancy process. Terms are generally more generous than compulsory redundancy, which is why departments and public bodies often open one first.Read more

W

Waiver(Employment Rights Act 1996, s.203): The clause, and the core legal effect, of a settlement agreement: you agree to give up your right to bring the specified employment claims against your employer in exchange for the payment and other terms. It should list named claims, not a blanket waiver of everything, and should carve out claims that have not yet arisen.Read more
Warranty: A statement of fact you or your employer confirm as true in the agreement, for example that you have not already started a new job, or that you have disclosed all relevant matters. Breaching a warranty can expose you to a claim for damages, so warranties should be checked carefully before signing.
Without prejudice save as to costs: A Calderbank offer: the communication stays protected from being used as evidence of liability while a case is being decided, but once the tribunal or court has ruled, either side can point to the offer when costs are being decided, because an unreasonable refusal of a fair offer can affect a costs award.Read more

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