One of the most common questions I’m asked when advising on settlement agreements is: “How much should the employer contribute towards my legal fees?” or “Is the contribution to legal costs ok?”

Both fair questions, because the law requires employees to take independent legal advice before signing and ideally, no employee losing their job wishes to be out of pocket!. Without legal advice though, the agreement simply isn’t binding. Employers know this, and so almost every settlement agreement comes with a contribution to the employee’s legal costs. But how much should that contribution be, and why does it matter?

It isn’t technically a legal requirement

There is actually no law that says an employer must pay towards the employee’s legal costs. What the law does say, under section 203 of the Employment Rights Act 1996, is that for a settlement agreement to be valid, the employee must have received independent legal advice on the terms and effect of the agreement.

In practice, that creates a problem. If the employee has to pay their solicitor privately, it can eat into their settlement payment and create a barrier to reaching agreement. That is why employers almost always offer a contribution. It oils the wheels of settlement.

What advice is actually required?

It’s worth pausing here to consider what “independent legal advice” really involves. Some people imagine it’s just a case of the solicitor flicking through a few pages and saying “sign here.” The reality is quite different – certainly for me, as I like to do my job properly.

Proper advice on a settlement agreement involves:

1. Explaining the effect of the agreement – what rights the employee is giving up, and what claims they could otherwise bring.

2. Reviewing all the terms in detail – from waivers of claims, to confidentiality, to post-termination restrictions.

3. Considering tax issues – for example, whether termination payments are properly structured, or whether HMRC may later claim tax and NI.

4. Checking for unusual clauses – such as clawback provisions, repayment obligations, indemnities, or warranties by the employee.

5. Advising on the fairness of the overall package – whether the compensation offered is reasonable compared with what a tribunal might award.

6. Negotiating amendments if needed – in many cases, a solicitor will go back to the employer’s solicitors with changes, which can take hours of additional work.

So it isn’t just signing. A proper review and advice process can easily take several hours.

A tribunal case on legal costs for settlement agreements

The leading case on what is reasonable for legal costs on settlement agreements is Solomon v University of Hertfordshire [2012]. In that case, the employee argued that being offered only £500 towards their legal fees put them under unfair pressure to sign, because it simply wasn’t enough to pay for proper advice. The court agreed that if the contribution is too low, it could amount to improper pressure, undermining the fairness of the agreement. The Judge said:

We wish to say a word about the offer of £500 to the Claimant to obtain legal advice. We think it clear that the advice which the Claimant could expect to receive for this sum (or any sum remotely like it) would only relate to the terms and effect of the proposed settlement and its effect on her ability to pursue her rights thereafter (see section 203(3) of the Employment Rights Act 1996). Any advice as to the merits of the Claimant’s claim and the likely award of compensation would require reading and consideration on a quite different scale. So even if the Claimant had sought advice, she would still have had to make her own lay assessment as to the merits of her claim and the likely award of compensation. The ET said, in paragraph 10 of its reasons, that the offer of £500 plus VAT was for a solicitor “to advise on the merits of a settlement”. If so, the offer was wholly unrealistic.

In short, an offer of £500 plus VAT was wholly unrealistic in anything more than a simple standard redundancy-based settlement agreement.

Following that case, employers recognised that £350, the previous ‘standard’ wasn’t enough. For many years afterwards, the market settled at around £500 plus VAT as the “standard” contribution.

The reality today in 2025

When I first started practising nearly twenty years ago, the standard contribution was indeed £350 plus VAT. After Solomon, that rose to at least £500 plus VAT.

But times have moved on again. The complexity of agreements has increased, employment law has grown more intricate, and solicitors’ costs have naturally risen in line with inflation. In reality, £500 will rarely cover the true cost of proper advice today.

I would say the sensible minimum contribution is now £750 plus VAT. Where the agreement is more complex, or where there are disputes about redundancy, discrimination or whistleblowing, it is common to see figures of £1,000 to £2,000 plus VAT, and sometimes even higher if tribunal proceedings are already underway.

Yes, that means if you’re an employee, you may have to pay something for my advice. But it’ll be the best advice, and the best service – and it’ll be worth paying for.

Conclusion

The contribution to legal costs is not a legal requirement, but in practice, it is essential. If it is too low, the employee cannot get proper advice, and that risks the agreement being undermined. Solomon confirmed as much, and the market has adjusted.

So the days of £350 contributions are long gone. £500 became the norm after Solomon, but in today’s world, £750 should really be seen as the baseline. Anything less, and employers may find themselves delaying settlement or creating unnecessary friction – the very opposite of what a settlement agreement is supposed to achieve.

If you’re an employee with a settlement agreement, get in touch.

And if you’re an employer considering giving a settlement agreement to an employee, I can help with that too. Get in touch.