Settlement Agreements in Schools Explained

This guide is about the machinery — how settlement agreements work as legal instruments, and what the school-sector rules require of the employer offering one. If you have personally been offered an agreement and want the decision-making side of it, our companion page on settlement agreements for teachers covers what to negotiate, who pays for advice, what a reference can and cannot say, and a worked example from the employee's point of view. The two pages are designed to be read together and deliberately do not repeat each other.

The reason for covering the machinery separately is that in schools, an unusual amount of what determines the outcome happens before the teacher ever sees a draft. Whether a trust can lawfully make the payment at all, whether it needs the Department for Education's permission first, whether it can ask for confidentiality, and who in the organisation actually has authority to decide — all of that is settled by rules the teacher is rarely shown and often has never heard of. Understanding those rules changes what it is sensible to ask for, and it explains a great deal of otherwise baffling employer behaviour.

What changes on 1 October 2026

The Academy Trust Handbook 2026 comes into effect on 1 October 2026, replacing the 2025 edition. Its treatment of staff exits is materially tighter than its predecessor's, and three changes matter most.

The first is tone made operational. Paragraph 5.12 opens with the word exceptionally: if a trust is considering a staff severance payment above statutory or contractual entitlements, it must follow both DfE's special severance payments guidance and HM Treasury's Public Sector Exit Payments guidance. The word is doing real work. It signals that a payment of this kind is not a routine tool of people management, which is exactly what it had drifted towards being in parts of the sector.

The second is that the handbook now puts a number on a test that used to be expressed vaguely. Before making a binding commitment, a trust must consider whether the payment is justified based on a legal assessment of the prospects of successfully defending an employment tribunal case: a greater than 50% prospect of losing justifies settling, and where the trust has at least a 50% chance of success, a settlement should not be offered. Paragraph 5.7 applies the same logic to gross misconduct cases, where legal advice indicating a claimant would be more likely than not to succeed because of procedural errors may justify a payment. Trusts must also consider whether the settlement level stays below what a tribunal would be likely to award, and must record the decision, the legal advice, the supporting evidence and the value-for-money assurance.

The third is narrower than most reporting suggests, and it concerns confidentiality clauses. The rule that such clauses are always novel, contentious or repercussive is not new for 2026 — it arrived with the 2025 edition, at paragraph 5.13, and has been operative since 1 September 2025. What the 2026 edition does is re-scope it, and that re-scoping matters. It is covered in its own section below.

Three statutory regimes, not one

The starting point is that you generally cannot contract out of statutory employment rights. Section 203(1) of the Employment Rights Act 1996 provides that any provision in an agreement is void in so far as it purports to exclude or limit the operation of any provision of the Act, or to preclude a person from bringing proceedings under the Act before an employment tribunal. A settlement agreement is one of the narrow exceptions carved out of that rule, and it is an exception that only works if the statutory conditions are met exactly.

What trips people up is that there is not one such rule but several, sitting in different statutes and covering different claims. An agreement drafted to satisfy only the Employment Rights Act does not validly waive a discrimination complaint, no matter how comprehensively worded it is.

A teacher's exit commonly engages at least two of these and sometimes all three — an unfair dismissal claim under the ERA, a disability or pregnancy discrimination complaint under the Equality Act, and occasionally a union detriment issue under TULRCA. A well-drafted agreement recites each regime separately and states, for each, that the relevant statutory conditions are satisfied. An agreement that tries to do the job in one sweeping clause is a drafting shortcut, and the party it leaves exposed is the employer, because the waiver simply will not hold.

Three things a settlement agreement cannot waive at all are worth naming here, because they are asked about constantly. Accrued occupational pension rights and personal injury claims that neither party knows about at the time of signing are both outside the employer's gift. And there is a specific statutory exception that matters a great deal in school reorganisations: section 288(2C) of TULRCA provides that the proceedings excepted from the settlement-agreement route are proceedings on a complaint of non-compliance with section 188 — the collective redundancy consultation duty. A claim for a protective award cannot be settled by a settlement agreement at all. It can only be compromised through an Acas-conciliated COT3. If a trust running a restructure asks you to sign away a protective award claim in a settlement agreement, that part of the document does not work.

The conditions, and who can advise

Section 203(3) sets out six conditions. In substance they are replicated in the Equality Act and TULRCA versions, and the practical effect is the same in each.

• (a) The agreement is in writing. An oral settlement of statutory claims is not a settlement agreement at all.
• (b) It relates to the particular proceedings — or, under the Equality Act, the particular complaint. This is why agreements list claims specifically rather than waiving everything in the abstract. Blanket waivers of unknown future claims sit on weak ground.
• (c) The employee has received advice from a relevant independent adviser on the terms and effect of the agreement, and in particular its effect on their ability to pursue their rights before an employment tribunal. Advice on the terms alone is not enough; the tribunal point is specified.
• (d) The adviser has a current contract of insurance or professional indemnity covering the risk of a claim by the employee in respect of loss arising from that advice, in force when the advice is given.
• (e) The agreement identifies the adviser. By name, in the document.
• (f) The agreement states that the conditions regulating settlement agreements are satisfied. A formal recital, but a required one.

Who counts as a relevant independent adviser is defined in section 203(3A), and it is broader than "a solicitor". It covers a qualified lawyer; an officer, official, employee or member of an independent trade union who has been certified in writing by the union as competent to give advice and authorised to do so on the union's behalf; and a worker at an advice centre, whether employee or volunteer, certified and authorised in the same way. The Secretary of State may specify further descriptions of person by order.

Section 203(3B) then disqualifies people, and the disqualifications are the important half. A person is not a relevant independent adviser if they are, are employed by, or are acting in the matter for the employer or an associated employer; if, in the union or advice centre cases, the union or centre is the employer or an associated employer; if, for advice centre workers, the employee pays for the advice; or if a condition in an order made under section 203(3A)(d) is not satisfied.

The Equality Act version is wider still on this point, and it is the wider test that a discrimination waiver has to satisfy. Section 147(5) excludes not only a party to the contract or the complaint but anyone connected to such a person, their employees, and anyone acting for them — and section 147(9) adds an open-ended catch-all, treating two persons as connected in so far as a connection between them gives rise to a conflict of interest in relation to the contract or the complaint. There is no equivalent conflict-of-interest language in section 203(3B). One further drafting difference is worth knowing: section 203(3)(f) requires the agreement to state that all the conditions are satisfied, whereas section 147(3)(f) requires only a statement that the advice and insurance conditions are met. A competent agreement satisfies both formulations rather than choosing between them.

Protected conversations vs without prejudice

These two things are constantly conflated, including by people who ought to know better, and the gap between them is where teachers get hurt. They are different rules, with different triggers, different scope and different exceptions.

Put the two together and the practical point falls out. Where there is a genuine existing dispute, both rules can apply at once and the employee is in the more familiar territory. Where there is no dispute yet — the classic case of a head teacher opening a conversation about a "fresh start" before any formal process has begun — the employer has only section 111A, and section 111A is narrow.

The Acas Code and the 25% myth

The Acas Code of Practice on Settlement Agreements was published on 29 July 2013 — the same day section 111A came into force — and remains the current edition. It is a statutory Code, issued under section 199 of TULRCA, and employment tribunals must take it into account where relevant. Three of its provisions are quoted constantly and one of its most important statements almost never is.

• Paragraph 12 — ten calendar days. A minimum period of 10 calendar days should be allowed to consider the proposed formal written terms of a settlement agreement and to receive independent advice, unless the parties agree otherwise. Calendar days, not working days, and the clock runs from the written terms rather than the first conversation.
• Paragraph 13 — accompaniment is good practice, not a right. Employers should allow employees to be accompanied at the meeting by a work colleague, trade union official or trade union representative. This is a recommendation in a Code, not the statutory right to be accompanied that applies to disciplinary and grievance hearings. Schools almost always agree when asked; ask anyway, and ask in writing.
• Paragraphs 17 and 18 — improper behaviour. Paragraph 17 says improper behaviour will include, but is not limited to, behaviour amounting to unambiguous impropriety, and that it is ultimately for tribunals to decide. Paragraph 18 gives a non-exhaustive list: harassment, bullying and intimidation; physical assault or the threat of it; victimisation; discrimination; and undue pressure — which expressly includes not allowing reasonable time to consider an offer, and telling an employee before any disciplinary process has begun that they will be dismissed if they reject the proposal.

That last example is worth pausing on, because it describes a conversation that happens in schools more often than anyone would like to admit. A teacher called in and told that if they do not accept the offer the school will move to a capability or disciplinary process that will end in dismissal, where no such process has yet been started, is being given a textbook example of the undue pressure the Code identifies.

Academies: the special severance regime

Academy trusts spend public money under a funding agreement, and the Academy Trust Handbook is where the conditions attached to that money live. Part 5 deals with delegated authorities, and paragraphs 5.7 to 5.16 deal with severance and compensation payments.

The key definition is at paragraph 5.9: special staff severance payments are those paid to employees outside statutory or contractual requirements when leaving public employment. Everything the teacher is contractually or statutorily owed — notice, accrued holiday, statutory redundancy pay — sits outside this definition. What is caught is the discretionary element: the compensation that makes a settlement attractive in the first place.

Paragraph 5.16 applies a parallel £50,000 rule to compensation payments — redress for loss or injury — which are a different category from severance and are dealt with at paragraphs 5.15 and 5.16. The threshold is the same and the requirement to base the decision on careful appraisal including relevant legal advice is explicit.

The £174,000 figure is worth stating precisely because it is frequently mis-reported as £150,000. It is the same threshold the handbook uses elsewhere for executive remuneration approvals, and our guide to school business manager and trust finance pay covers that side of the regime.

Confidentiality clauses after 1 October 2026

This is the provision most likely to alter what a teacher is actually offered — and it is also the one most frequently mis-dated in sector commentary, so it is worth being careful about what changed and when.

Paragraph 5.14 of the Academy Trust Handbook 2026 provides that in respect of special severance payments, confidentiality clauses are always novel, contentious or repercussive, and so must not be used unless the trust has obtained prior DfE approval. There is no de minimis and no exception. Paragraph 5.13 reinforces the point by listing, among the payments needing prior approval, those that are novel, contentious or repercussive — expressly including where the exit package contains a confidentiality agreement.

The practical consequence for a trust is uncomfortable either way. A confidentiality clause is one of the things employers most want from a settlement, and asking for one in a special severance case means going to the DfE first — with the delay and the disclosure of the case that entails. Some trusts conclude the clause is not worth the approval process. Others structure the package so the payment is contractual rather than special. Either way, a teacher being asked to accept confidentiality has a legitimate question: has the trust obtained prior approval for this clause?

Two further limits in paragraph 5.14 apply to any severance payment, not only special ones. A confidentiality clause must not prevent an individual's right to make disclosures in the public interest — whistleblowing — under the Public Interest Disclosure Act 1998. And it must not be used to prevent the DfE from obtaining sufficient information from trusts to fully assess such payments under its regulatory role.

The whistleblowing point is not merely a handbook rule, and this is worth knowing because it applies to every school rather than only to academies. Section 43J of the Employment Rights Act 1996 — headed "Contractual duties of confidentiality" and in force now — provides that any provision in an agreement is void in so far as it purports to preclude the worker from making a protected disclosure, and extends that to agreements to refrain from instituting or continuing proceedings. A confidentiality clause that would gag a protected disclosure is void as a matter of statute, regardless of who the employer is or whether anybody sought approval for it.

Maintained schools work differently

None of the handbook regime applies to a local-authority-maintained school. The mechanism there is section 37 of the Education Act 2002, and it is worth reading closely because it allocates power in a way that surprises most people.

Section 37(1) provides that it is for the governing body of a maintained school to determine whether any payment should be made by the local authority in respect of the dismissal, or for the purpose of securing the resignation, of any member of the staff of the school, and the amount of any such payment. Section 37(3) then provides that the local authority shall take such steps as may be required for giving effect to any such determination, and shall not make, or agree to make, a payment in relation to which that subsection applies except in accordance with such a determination.

Section 37(2) carves out payments the authority is required to make anyway — under a contract other than one made in contemplation of the impending dismissal or resignation, or under any statutory provision. So contractual notice pay and statutory redundancy pay sit outside the section entirely; what section 37 governs is the discretionary element, which is the same element the handbook calls special severance in the academy sector.

Two practical consequences follow. First, in a maintained school the person you are ultimately negotiating with is the governing body, however the conversation is conducted — and a head teacher or HR adviser saying that "the local authority will not allow it" is describing an authority that section 37(3) says must give effect to the governing body's determination. Second, the absence of a DfE approval threshold does not mean the absence of scrutiny; local authority financial regulations frequently impose their own limits, and those are a legitimate thing to ask about.

Safeguarding: the hard limit

This is the most important section on the page, and the one where a teacher is most likely to be given a falsely reassuring impression. Keeping Children Safe in Education 2026 came into force on 1 September 2026 and is statutory guidance that schools and colleges must have regard to. It addresses settlement agreements directly.

Paragraph 492 states that settlement agreements, sometimes referred to as compromise agreements, by which a person agrees to resign if the employer agrees not to pursue disciplinary action and both parties agree a form of words to be used in any future reference, should not be used where there are allegations that indicate the person is a risk or poses a risk of harm to children or deemed not suitable to work with children. It adds that such an agreement will not prevent a thorough police and/or school or college investigation where that is appropriate.

Paragraph 493 says schools and colleges should not cease their investigations if the person leaves, resigns or ceases to provide their services, and that it is important that every effort is made to reach a conclusion in all cases of allegations with a bearing on the safety or welfare of children — including any in which the person concerned refuses to cooperate. Paragraph 496 puts the position plainly: it is not appropriate to reach a settlement or compromise agreement if the person subject to the allegation resigns or their services cease to be used, though in limited circumstances schools and colleges do use settlement agreements to end the employment relationship on agreed terms — but not where there is an allegation that the individual poses a risk to children.

Paragraph 497 then sets out what a settlement agreement, where one is used, must not be allowed to prevent:

• Fulfilling the legal duty to refer cases to the DBS where the referral criteria are met (see KCSIE paragraphs 427 to 431). KCSIE states in terms that non-compliance with this duty is a criminal offence.
• Providing a reference to potential employers when requested.
• Considering whether to make a referral to the Teaching Regulation Agency where the criteria are met (see KCSIE paragraphs 432 to 433, and sections 141D and 141E of the Education Act 2002).

The DBS duty itself is at paragraph 428: there is a legal requirement for schools and colleges to make a referral where they remove an individual from regulated activity, or would have removed them had they not left, and they believe the individual has engaged in relevant conduct in relation to children or adults, satisfied the harm test, or been cautioned or convicted of a relevant offence. Paragraph 431 adds that referrals should be made as soon as possible when an individual is removed from regulated activity — which expressly includes where they have resigned.

Tax: the £30,000 rule and PENP

The £30,000 exemption in section 403 of ITEPA 2003 is the best-known fact about settlement payments and the most frequently misapplied. It does not mean the first £30,000 of any settlement is tax-free. It means the first £30,000 of a genuine termination payment is — after a statutory calculation has taken out anything that is really pay for notice you did not work.

That calculation is post-employment notice pay, introduced by sections 402A to 402E of ITEPA 2003 with effect from 6 April 2018. The formula in section 402D(1) is:

Two simplifications matter for teachers, who are almost always paid monthly. Under section 402D(6), where the last pay period was a month, basic pay is paid in equal monthly instalments, the contractual minimum notice is expressed in whole months, and the unworked notice is a whole number of months, then P is 1 and D is the number of months — so the calculation collapses to monthly basic pay multiplied by the months not worked. Where those conditions are not all met but the employee is still monthly paid, section 402D(6A), inserted with effect from 6 April 2021, sets P at 30.42 and D as the actual number of days. Older worked examples that show only a days-based calculation predate that amendment.

The resulting figure is taxed as ordinary earnings under section 402B(1)(a): income tax, employee National Insurance and employer National Insurance. Only the balance is tested against the £30,000 exemption. Above £30,000, income tax applies to the excess and employer Class 1A National Insurance is charged at 15% for 2026/27, reported in real time through payroll rather than on a P11D. There is no employee National Insurance on the excess — which is worth knowing, because it is one of the few respects in which the position is better than people expect.

A worked example

A teacher on the 2026/27 M6 point of £46,940, paid monthly in equal instalments, with a contractual notice period expressed in months, leaves with two months of notice unworked and no contractual payment in lieu. Because every condition in section 402D(6) is met, the whole-months route applies.

Now apply that to two offers. On a £35,000 package described in the agreement as compensation, £7,823 is post-employment notice pay and is taxed as earnings with income tax and both employee and employer NICs. The remaining £27,177 falls under section 403 and, being below £30,000, is free of income tax and of employee NICs. The teacher who was told "it is under the threshold, so it is tax-free" has still lost tax and NICs on nearly £7,900.

On a £60,000 package, the same £7,823 comes out first as PENP. Of the remaining £52,177, the first £30,000 is exempt and £22,177 is subject to income tax. The employer pays Class 1A at 15% on that £22,177 — about £3,327 — which is a large part of why employers resist pushing figures past the threshold, since each extra pound of compensation costs them more than a pound.

Expect the agreement to contain a tax indemnity under which you reimburse the employer if HMRC later assesses more tax than was deducted. That clause is standard and rarely negotiable, and it is the strongest practical reason to have the PENP figure checked by your adviser before you sign rather than discovering it afterwards.

What is coming next on NDAs

One further change is on the way, and it is worth knowing about because it is not yet in force and is widely reported as though it were.

Section 24 of the Employment Rights Act 2025 — headed "Contractual duties of confidentiality relating to harassment and discrimination" — inserts a new section 202A into the Employment Rights Act 1996. The effect, once commenced, is that any provision in an agreement between an employer and a worker, including a settlement agreement or a standalone non-disclosure agreement, will be void to the extent that it purports to prevent the worker from making an allegation or disclosure of relevant harassment or discrimination, or about the employer's response to it.

The position as at the date of this page is that parts of section 24 have been commenced for limited purposes — principally the regulation-making powers — but the substantive prohibition is not yet in force. The Government has consulted on the detail, including a concept of "excepted agreements" which would remain enforceable where conditions such as independent advice, specific written consent and a cooling-off period are met. The change is expected to take effect in 2027 and is not expected to apply retrospectively to agreements already signed. We have deliberately not put a firmer date on it than that, because none has been set.

For schools the interaction is worth noting. From 1 October 2026 an academy trust already cannot use a confidentiality clause in a special severance case without prior DfE approval. When section 202A commences, a further and broader restriction will sit on top of it, applying to maintained schools and academies alike.

If one is put in front of you

• Do not respond substantively in the meeting. You are entitled to say you will consider it and come back. Nothing needs to be decided on the spot, and the Acas Code contemplates at least 10 calendar days from the written terms.
• Ask for the offer in writing, broken down by category — notice, accrued holiday, statutory redundancy if any, and the compensation element separately. You cannot assess the tax position, and your adviser cannot calculate PENP, from a single headline number.
• Contact your union before you contact a solicitor. Union legal services are free at the point of use for members, and your regional officer will have seen how this employer handles these cases before.
• Ask which statutory regimes the agreement covers. If a discrimination complaint is in play, check that the Equality Act 2010 section 147 conditions are recited, not just the Employment Rights Act ones.
• In an academy, ask whether DfE approval has been obtained or is needed — for the payment if the non-contractual element approaches £50,000, and for any confidentiality clause proposed on or after 1 October 2026.
• In a maintained school, ask who has made the section 37 determination and when the governing body considered it.
• Ask what the employer will say in a reference, and get the agreed wording annexed to the agreement rather than described in it.
• Check the termination date against your pension. A date moved by a few weeks can change a service calculation, and it is far easier to adjust before signing than after.
• If a safeguarding allegation exists, do not treat the agreement as closing it. Ask instead for the investigation to be concluded and the outcome recorded.
• Do not sign anything until your adviser has confirmed the PENP calculation and the tax indemnity.

Sources and accuracy

The statutory framework on this page is taken from legislation.gov.uk: section 203 of the Employment Rights Act 1996, including subsections (1), (3)(a) to (f), (3A) and (3B), and section 43J; section 111A of the same Act, including subsections (1), (3), (4) and (5), in force since 29 July 2013; section 147 of the Equality Act 2010, including subsections (3), (4), (5) and (9); and section 288 of the Trade Union and Labour Relations (Consolidation) Act 1992, including subsections (2A), (2B) and (2C). The forthcoming NDA restriction is section 24 of the Employment Rights Act 2025, inserting section 202A into the Employment Rights Act 1996; its substantive provisions were not in force at the date of this page.

Two adjacent changes under the Employment Rights Act 2025 are worth noting even though they are not settlement agreement provisions. Section 25 and Schedule 3 reduce the qualifying period for ordinary unfair dismissal in section 108 of the Employment Rights Act 1996 from two years to six months, with effect from 1 January 2027 — the widely reported "day one" version of that reform did not survive into the Act. Because section 111A protects only complaints under section 111, that change will widen the group of teachers for whom a protected conversation has any effect at all.

The Acas material comes from the Code of Practice on Settlement Agreements published on 29 July 2013, which remains the current edition, specifically its foreword and paragraphs 7, 12, 13, 17 and 18. The statement that breaching it does not lead to an adjustment in compensation is quoted from the Code's own foreword.

Academy sector rules are from the Academy Trust Handbook 2026, effective from 1 October 2026, paragraphs 5.6 to 5.17, published on gov.uk, together with the Academies Accounts Direction 2025 to 2026, paragraphs 2.149 and 2.150. Note that until 30 September 2026 the operative document is the 2025 edition of the handbook, in which the paragraph numbers in this area are one lower — the confidentiality rule is 5.13 there and 5.14 in the 2026 edition. Maintained school rules are from section 37 of the Education Act 2002. Safeguarding material is from Keeping Children Safe in Education 2026, in force from 1 September 2026, paragraphs 190, 427 to 431, 432 to 433, and 492 to 497; the underlying statutory duties are sections 35 and 38 of the Safeguarding Vulnerable Groups Act 2006 for DBS referral, and sections 141D and 141E of the Education Act 2002 for the TRA.

Tax material is from ITEPA 2003 sections 402A to 402E — including section 402C(2) on relevant termination awards and sections 402D(6) and 402D(6A) on monthly-paid employees — and section 403. Employer Class 1A on the excess over £30,000 derives from section 10(1A) of the Social Security Contributions and Benefits Act 1992, inserted by the National Insurance Contributions (Termination Awards and Sporting Testimonials) Act 2019 with effect from 6 April 2020; the rate of 15% is the published Class 1A rate on termination awards for 2026/27. The salary used in the worked example is the confirmed 2026/27 M6 point for England of £46,940 from our pay scales page; academy trusts are not bound by the national pay scale, so substitute your own figure.

Three honest limitations. First, the blanket prior-approval requirement for confidentiality clauses is very widely described in sector commentary as new for October 2026. It is not: it appeared in the 2025 edition of the handbook and has been operative since 1 September 2025. We have said so because the alternative is repeating a claim that would mislead anyone trying to work out whether a clause offered to them last term was compliant. Second, the commencement date for section 202A is genuinely unsettled — the Government's consultation closed on 8 July 2026 and no outcome had been published at the date of this page, so we have given the expected year rather than a date with no statutory instrument behind it. Third, Keeping Children Safe in Education uses "should not be used" rather than "must not be used" of settlement agreements in risk-of-harm cases, and we have quoted it accurately rather than strengthening it; KCSIE's own key treats "should" as meaning follow unless there is good reason not to. Note also that the paragraph numbers for all of this moved in the 2026 edition, so older guidance citing paragraphs 413 to 418 is referring to the same text under its 2025 numbering.

This page explains mechanics; it is not legal advice, and settlement outcomes turn heavily on individual facts and on the precise wording of a particular draft. A settlement agreement is not valid unless you have taken advice from a relevant independent adviser in any event, so the question is never whether to take advice but who from and how early. If you are a union member, make that call before your first substantive conversation with your employer rather than after it — most of the leverage in these processes exists before anything is written down.