Can You Refuse a Settlement Agreement? What Happens Next (UK Employment Law)

A settlement agreement is commonly used by employers to bring an employment relationship to an end or to resolve a workplace dispute. Employees are often presented with a settlement agreement at a stressful time, such as during redundancy or performance concerns. A frequent question is whether a settlement agreement must be accepted, and what happens if it is refused.

The short answer is that a settlement agreement is voluntary. An employee cannot be forced to sign a settlement agreement. However, refusing a settlement agreement does not mean the situation simply ends. In most cases, refusing a settlement agreement leads to the employer taking alternative steps.

What Is a Settlement Agreement?

A settlement agreement is a legally binding contract between an employer and an employee. It usually involves the employee agreeing to waive certain legal claims, such as unfair dismissal or discrimination claims, in return for compensation or other agreed terms.

For a settlement agreement to be valid under UK employment law, the employee must receive independent legal advice and the agreement must meet statutory requirements. Until it is signed, the settlement agreement has no legal effect.

Can You Refuse a Settlement Agreement?

An employee is entitled to refuse a settlement agreement. There is no obligation to accept the terms offered, even if the employer applies pressure or sets a deadline. A settlement agreement is based on mutual consent, and without that consent it cannot proceed.

Refusing a settlement agreement is not, in itself, misconduct or a breach of contract. An employer cannot lawfully discipline an employee simply for declining to sign a settlement agreement.

Why Do Employees Refuse a Settlement Agreement?

Employees often refuse a settlement agreement because the compensation offered is too low, the wording is too restrictive, or the proposed reference is unsatisfactory. In some cases, the employee may believe they have strong legal claims that are worth more than the settlement agreement being offered.

Another common reason is that the employee wants to remain in employment and does not agree that the employment relationship should end on the terms proposed in the settlement agreement.

What Happens If You Refuse a Settlement Agreement?

If a settlement agreement is refused, the employer must decide how to proceed without it. In most cases, the employer will continue with a formal process. This may include a redundancy process, a performance management process, a disciplinary process, or a grievance investigation.

If the employer ultimately dismisses the employee, that dismissal must still be lawful. The employer must follow a fair procedure and have a potentially fair reason for dismissal. Refusing a settlement agreement does not remove the employee’s legal protections.

In some cases, refusing a settlement agreement leads to further negotiations. Employers often expect some negotiation and may increase the financial offer or amend the terms of the settlement agreement if the employee raises reasonable concerns.

Can an Employer Withdraw the Settlement Offer?

An employer is entitled to withdraw a settlement agreement offer if it is not accepted. Settlement agreement offers are usually made on a without prejudice basis, meaning they are part of negotiations and not binding until signed.

If the offer is withdrawn, the employee cannot insist on receiving the compensation originally proposed. This is an important risk to consider when deciding whether to refuse a settlement agreement.

Does Refusing a Settlement Agreement Affect Legal Claims?

Refusing a settlement agreement preserves the employee’s right to bring legal claims, such as unfair dismissal or discrimination claims, provided the legal requirements are met and time limits are observed.

Signing a settlement agreement removes those rights. Refusal means the employee keeps their ability to pursue claims if the dispute later escalates to an employment tribunal.

You can refuse a settlement agreement under UK employment law. A settlement agreement is voluntary and only becomes binding once signed. However, refusing a settlement agreement usually means the employer will move forward with another formal process, and the opportunity to resolve matters on agreed terms may be lost.

Before deciding whether to accept or refuse a settlement agreement, it is important to understand what rights are being waived, what alternatives may follow, and whether the settlement agreement properly reflects the risks on both sides. For more information, please contact us on 01524 907100, info@pre-law.co.uk or through our online enquiry form.