Key Takeaways
- Many constructive dismissal settlement agreements undervalue your claim, especially if they do not account for potential employment tribunal compensation, notice pay and your tax-free element.
- Warning signs that your settlement offer may be too low include offers below your notice period value, lack of additional ex gratia payments, or ignoring discrimination or whistleblowing claims.
- You do not have to accept the first constructive dismissal settlement offer, and our solicitors can negotiate for a higher payment, agreed references or softer post-employment restrictions.
- A fair settlement should reflect the seriousness of your resignation reasons, such as bullying, breach of contract or a toxic work environment, not just what your employer is willing to pay.
- Restrictive covenants in a settlement agreement must be assessed for fairness and value, especially if your employer expects you to accept without extra compensation.
- Fast or pressured signing is a major warning sign—delay tactics or threats from your employer often mean the settlement agreement is not in your best interest.
- Our SRA regulated solicitors offer free, same-day remote advice to review your settlement agreement before you sign, with all fees paid by your employer.
- Over 1,400 five-star reviews on Trustpilot and Google confirm that our solicitors help employees secure fair outcomes on constructive dismissal settlement agreements.
Constructive dismissal settlement agreements: warning signs that the offer may be too low
If you have received a constructive dismissal settlement agreement, it is critical to know that independent legal advice is a legal requirement before signing—without this advice and a solicitor’s certificate, the agreement is not binding. In virtually all cases, your employer will pay for you to get this expert advice, so there is no cost to you.
Signing a settlement agreement waives your right to bring any legal claim for constructive dismissal or related issues at the employment tribunal. This means you must ensure your settlement offer is genuinely fair and tax-efficient—especially as many offers undervalue what your claim could be worth, and may overlook notice pay, discrimination, whistleblowing, or restrictive covenants. Our solicitors provide fast, fully-funded advice to help you understand whether your offer is too low and to negotiate improvements before you sign.
In this article, you’ll learn the most common warning signs a constructive dismissal settlement offer is too low, how to compare your offer to likely tribunal compensation, and practical steps to secure a better deal. For tailored advice within 24 hours, call our solicitors on 0800 054 1144 or book your settlement agreement advice online.
How do I know if my constructive dismissal settlement agreement offer is too low?
Determining whether a constructive dismissal settlement agreement is too low can be challenging. The right amount should reflect not only your lost earnings but also compensation for your treatment and legal rights. Begin by calculating what you would have received had you stayed in your role (including salary, notice period, accrued holiday, and pension contributions). Compare this to the offer on the table, and factor in how strong your legal claim would be if brought to an Employment Tribunal.
You should also consider statutory limits. As of 2024, the basic award for unfair dismissal is capped according to your age, weekly pay (up to £643 per week), and length of service (up to 20 years). The compensatory award for loss of earnings is capped at £105,707 or 52 weeks’ gross pay, whichever is lower. Review whether your offer matches or exceeds these figures, especially if your employer is trying to offload you quickly.
Seek out indicators of a low offer, such as being presented with a figure lower than your statutory minimum entitlements or lacking payment for additional losses (bonus, benefits, or injury to feelings – where discrimination or harassment is alleged).
What is constructive dismissal and how does it lead to a settlement agreement?
Constructive dismissal arises when your employer seriously breaches your contract—such as by demoting you, failing to address harassment, changing contractual terms without agreement, or making your work environment untenable—leaving you no choice but to resign. In law, your resignation is treated as a dismissal under section 95(1)(c) of the Employment Rights Act 1996.
Settlement agreements are common in constructive dismissal scenarios, as both parties may prefer to avoid costly, stressful tribunal proceedings. Employers use settlement agreements to secure the waiver of employment claims (including constructive dismissal, discrimination, and breach of contract) in exchange for a financial payment. The agreement usually contains clauses on confidentiality, references, and future restrictions.
Settlement agreements must be carefully weighed, as they require you to give up significant legal rights. Accepting a low settlement can mean missing out on compensation you might have won at tribunal. Before accepting or signing, it’s vital to assess all forms of loss and the potential value of your claim with a qualified adviser.
Is independent legal advice required before signing a settlement agreement? (s.203 Employment Rights Act 1996 explained)
Yes, independent legal advice (ILA) is mandatory. Under section 203 of the Employment Rights Act 1996, a settlement agreement is only legally binding if you receive advice from an independent solicitor or authorised adviser about its terms and effect, including the impact on your ability to make legal claims.
The solicitor’s role is to ensure you understand what rights you are waiving, the adequacy of the compensation, and any restrictions you may face after signing. Only once you have this advice—and the adviser provides their signed certificate—can the agreement become enforceable. Your employer will usually pay the legal fees for this advice, ensuring it’s free for you as the employee.
Not obtaining high-quality independent advice could result in you accepting an undervalued or risky deal. Always make sure your adviser is SRA-regulated and experienced in settlement agreements before signing.
If you are concerned that your constructive dismissal settlement might be too low or you need guidance, call our settlement agreement solicitors on 0800 054 1144, or book your settlement agreement advice online for a same-day ILA appointment. Our advice is always free to you as the employer pays our fees.
How can I tell if my constructive dismissal settlement offer is fair or undervalued?
Common Warning Signs the Settlement Offer Is Too Low
There are several red flags that suggest a constructive dismissal settlement offer is too low. These include offers that fail to cover your statutory notice period, ignore accrued holiday pay, exclude benefit or bonus entitlements, or provide only a token “ex gratia” sum. If the offer does not compensate you for the full range of potential losses you could claim at tribunal (such as loss of earnings, pension, or injury to feelings for discrimination), it is likely undervalued.
Another sign is if the employer pressures you to sign quickly or threatens that the offer will be withdrawn imminently. Rushed agreements or unnecessarily short deadlines can signal an attempt to avoid full liability. Offers that do not include an agreed reference, or that impose overly broad restrictive covenants, are additional warning signs.
Be wary of catch-all indemnities that place unexpected tax or legal liabilities on you, or clauses that limit your ability to work elsewhere.
Factors to Assess When Comparing to Potential Tribunal Awards
You should compare your offer to what you realistically stand to gain at an Employment Tribunal. This includes:
- The basic award (based on age, length of service, and weekly pay—see the gov.uk redundancy calculator)
- The compensatory award for lost earnings (capped at £105,707 or a year’s pay)
- Additional losses (bonuses, benefits, pension, injury to feelings if discrimination or whistleblowing is involved)
- Likelihood of success at tribunal—your case’s strength, available evidence, and employer conduct
Constructive dismissal claims are complex. If your offer is less than the minimum you might win, it is likely too low. Always weigh costs, time, and stress of pursuing a tribunal claim versus a fair negotiated outcome.
| Element | Typical in Low Offer | Tribunal Award Potential |
|---|---|---|
| Statutory notice pay | Sometimes omitted | Always included |
| Accrued holiday pay | Often missing | Always included |
| Pension/benefits | Usually excluded | May be included |
| Ex gratia compensation | Nominal (£) | Potentially substantial |
| Reference | Often generic/none | Not guaranteed by tribunal |
| Restrictive covenants | Excessive | Not imposed by tribunal |
If you’re unsure if your constructive dismissal settlement offer is fair, call our solicitors on 0800 054 1144 or book your settlement agreement advice online for a same-day remote ILA appointment. Our advice is always free to employees as the employer pays our fees.
How is constructive dismissal compensation calculated in a settlement agreement?
What should your settlement reflect?
Your constructive dismissal settlement should cover more than statutory minimums. It should include your statutory notice period, accrued holiday, lost benefits (like health insurance or car), and, where applicable, an ex gratia sum based on likely tribunal compensation. If discrimination, whistleblowing or harassment is involved, compensation for injury to feelings (within the Vento bands) should also be considered.
Employers sometimes omit or underpay these elements. Calculations will depend on your salary, service length, how easily you can find comparable work, and statutory caps.
Ex gratia, notice pay, and other financial elements
A typical constructive dismissal settlement agreement includes:
- Ex gratia payments: Tax-free up to £30,000 if genuinely for loss of employment
- Payment in lieu of notice (PILON): Fully taxable as earnings
- Accrued holiday pay: Taxed as normal income
- Bonus, commission, or other contractual entitlements: Taxed as normal
- Pension contributions to date of termination: Sometimes omitted
Always confirm each sum is correctly calculated. Ex gratia must be for genuine loss of employment, not disguised salary or notice, to qualify for the £30,000 tax-free exemption.
Is my settlement agreement payment tax free? Understanding tax on constructive dismissal settlements
The £30,000 tax exemption
Up to £30,000 of genuine compensation for losing your job can be paid tax-free and without National Insurance. This covers ex gratia sums paid above contractual pay. Payments for salary, notice or accrued holiday are always taxable.
Employers occasionally mislabel taxable pay as ex gratia. Seek proper advice so your settlement maximises the tax-free element and is structured to avoid future tax bills.
Payment in lieu of notice (PILON) and post-employment notice pay (PENP)
If your employer pays you instead of asking you to work your notice (PILON), this sum is taxable under PAYE. Since 2018, all notice pay—even disguised in the ex gratia sum—is taxable under PENP rules. Employers must separately state and tax PILON or PENP.
| Type of Payment | Tax-Free Portion | Taxable Portion |
|---|---|---|
| Statutory/contractual notice | None | 100% (PAYE) |
| Ex gratia (genuine loss) | First £30,000 | Remainder above £30,000 |
| Accrued holiday pay | None | 100% (PAYE) |
Tax risks and indemnities
Most agreements require you to indemnify the employer against additional tax if HMRC rules that payments should have been taxed. If too much has been paid tax-free, you could face the extra tax, interest, or penalties. The tax wording must align with reality and all calculations must be agreed in writing.
What are the key clauses and hidden risks in constructive dismissal settlement agreements?
Restrictive covenants: are they fair and enforceable?
Settlement agreements often include post-termination restrictions—such as non-compete, non-solicitation, or confidentiality clauses. Excessive or unnecessarily broad covenants can prevent you working in your sector for months or even years. To be enforceable, any restriction must protect a legitimate business interest and be reasonable in scope and duration.
If an agreement extends restrictive covenants from your contract or brings in new ones without extra pay, this can be challenged. You can often negotiate a reduction in the reach or length of such restrictions.
Confidentiality, references, and non-derogatory clauses
Standard clauses usually bar you from discussing the dispute, criticising your employer, or revealing settlement terms. Ensure your agreement includes an agreed reference—otherwise, your employer is free to refuse or provide only limited information.
Non-disparagement clauses should be mutual, protecting both you and your employer. You can also ask for exceptions to speak to regulators, police or as part of a whistleblowing disclosure.
Indemnities and ongoing obligations
Many agreements include indemnity clauses, making you responsible for any extra tax if HMRC questions the settlement, and may require you to comply with certain obligations or assist with legal proceedings.
If you want expert help reviewing clauses such as restrictive covenants or references in your settlement agreement, call our settlement agreement solicitors on 0800 054 1144, or book your settlement agreement advice online. All fees are paid by your employer.
Step-by-step: The process for reviewing, negotiating, and signing your settlement agreement
Remote and same-day legal advice
Our solicitors provide a fully remote, fast and secure process. You do not need to visit a solicitor’s office—your document is reviewed, advice is given (usually by phone or video), and your ILA certificate is issued electronically.
What to expect from start to finish
- Initial contact: Call us or book online, providing your draft agreement and any correspondence.
- Review: We review your settlement agreement, timelines, and financial details. Our solicitors spot missing payments, risky clauses, and areas to improve.
- Consultation: One of our solicitors will explain your rights, all the clauses, and any negotiation steps in plain English.
- Negotiation: If the offer is too low or the terms are unfair, we propose improvements to your employer—often resulting in more money, a better reference or less restrictive covenants.
- Signing: After you are happy, we issue your ILA certificate and coordinate with your employer for a smooth payout.
- Aftercare: We remain available for questions or to help if there are any payment delays.
Why Choose Settlement Agreement Lawyers?
Free (employer-funded) expert legal advice for employees
Our solicitors act only for employees. All settlement agreement advice is free to you, as the employer pays our legal fees. For details, see our funding explanation.
Fee always capped at employer’s contribution
We never charge you more than your employer’s contribution, regardless of the value or complexity of your case.
Same-day remote service across England & Wales
Our process is 100% paperless and remote, allowing for fast, expert advice wherever you live. Urgent ILA appointments are usually delivered same day.
SRA-regulated specialist solicitors
We are fully regulated by the Solicitors Regulation Authority (SRA), so you are assured of expertise, confidentiality and protection.
Independent negotiation for higher settlement and fairer terms
Our solicitors do not simply approve your agreement. We scrutinise every clause, negotiate for more compensation, and ensure restrictive covenants and references are fair. Thousands of clients have had their settlement improved thanks to our process.
Frequently Asked Questions About Constructive Dismissal Settlement Agreements: Warning Signs That the Offer May Be Too Low
What is a typical payout for constructive dismissal in the UK?
The typical payout for constructive dismissal ranges from a few thousand pounds to over £30,000, depending on your length of service, earnings, and the strength of your claim. Higher settlements often reflect extra claims, such as discrimination or whistleblowing.
Can I negotiate a higher settlement agreement for constructive dismissal?
Yes, you can negotiate a higher constructive dismissal settlement. It is common to negotiate, especially if you have legal representation, resulting in better financial terms, references, or less restrictive covenants.
Should I sign a settlement agreement if the offer seems too low?
You should not sign a settlement agreement if it appears too low. Always compare it against what you might win at tribunal and seek legal advice before accepting terms or waiving any rights.
What are the risks of signing a settlement agreement under pressure?
Signing under pressure risks you giving up valuable rights for insufficient compensation. Once signed, a settlement agreement is usually final—take legal advice before agreeing.
Is my constructive dismissal settlement agreement tax free?
Parts of your settlement, such as genuine ex gratia compensation for loss of employment, may be tax free up to £30,000. Payments for notice, holiday, and salary are always taxable.
Are restrictive covenants valid if I get no extra compensation?
Restrictive covenants can be valid if reasonable, but any new or longer restrictions should attract extra compensation or be open to negotiation. Excessive clauses can be challenged.
How does constructive dismissal differ from redundancy settlements?
Constructive dismissal means you resigned due to your employer’s fundamental breach of contract, while redundancy occurs when your job role is eliminated. The way claims and compensation are calculated can differ.
What claims do I waive by signing a constructive dismissal settlement agreement?
When you sign, you typically waive your rights to bring claims for unfair or constructive dismissal, discrimination, breach of contract, and most other employment claims, unless the agreement specifies otherwise. Legal advice ensures you know exactly what you are waiving.
Get Accurate Advice on Low Constructive Dismissal Settlement Agreement Offers
Understanding whether your constructive dismissal settlement agreement offer is too low requires expert assessment of your rights, the financial package, the tax implications, and whether the sum is fair for your circumstances. Our solicitors will review your agreement, highlight undervalued elements, and negotiate on your behalf for the best possible terms.
All our legal advice is free for employees because your employer pays our fee. You can access a same-day remote appointment with SRA-regulated specialists who only act for employees, wherever you are in England or Wales.
If you need a clear, expert review of your constructive dismissal settlement agreement or urgent advice on whether your offer is too low, call our settlement agreement solicitors on 0800 054 1144 or book your settlement agreement advice online for a same-day remote ILA appointment.























