NHS Settlement Agreements

Why NHS settlements are a different negotiation

In the private sector, an employer deciding what to offer is weighing litigation risk against cost, and can settle at whatever figure it chooses. An NHS trust is doing something more constrained. Its redundancy terms are set nationally rather than locally, and any payment outside those terms is subject to public spending controls.

This has a practical consequence that surprises people: the person across the table may genuinely lack authority to agree the number you are asking for, however reasonable it is. Understanding where the constraint sits tells you where to push and where you are wasting effort.

Agenda for Change and contractual redundancy pay

Most NHS employees other than doctors, dentists and very senior managers are employed on Agenda for Change terms, set out in the NHS Terms and Conditions of Service Handbook. Redundancy is dealt with in Section 16 of the Handbook.

The critical point is that this is contractual. Where Handbook terms are incorporated into your contract, redundancy pay calculated under Section 16 is a debt owed to you, not a discretionary offer made in exchange for your signature. As I explain on the enhanced redundancy package page, an offer that simply pays you what you were already contractually entitled to is not an enhancement at all. Check what the Handbook actually gives you before treating the figure as generous.

Always verify the current Handbook provisions rather than relying on a summary, including this one. The Handbook is amended, and the version that matters is the one in force at your termination date. The authoritative text is published by NHS Employers.

Mutually Agreed Resignation Schemes (MARS)

MARS is a form of voluntary severance under Section 20 of the Handbook. You agree to resign in return for a severance payment, typically to help a trust reduce headcount or free up posts for redeployment.

MARS is deliberately not redundancy, and that distinction carries real consequences:

• Because you resign rather than being dismissed, the payment is not a redundancy payment, and the tax analysis needs to be checked rather than assumed
• Leaving voluntarily can affect entitlement to benefits in a way that redundancy does not
• There are re-employment restrictions. Returning to NHS employment within one month generally triggers full repayment, and returning within the period the payment was calculated to cover generally triggers repayment of the unexpired portion

That last point catches people out badly. If you take MARS intending to return as a bank or agency worker, or to move to another trust, read the repayment clause before you sign anything. The restriction is set out in the agreement itself, and it is enforceable. NHS England's guidance on MARS is published here.

Special severance payments and why your trust says it cannot pay more

A special severance payment is, broadly, anything paid on exit that goes beyond contractual or statutory entitlement. In the public sector these are tightly controlled. Trusts are generally required to obtain approval, including HM Treasury approval in defined categories of case, before making such a payment, and the relevant framework is set out in HM Treasury guidance on public sector exit payments.

This explains a pattern I see repeatedly. An NHS employer will move relatively readily on things that are not special severance payments, and will resist, sometimes immovably, on things that are. So a negotiation that gets nowhere on the headline figure may still succeed on:

• The termination date, which is often the most valuable variable of all
• Whether notice is worked, or paid as a contractual entitlement
• Payment of accrued annual leave, including carried-over leave
• An agreed reference annexed to the agreement
• Withdrawal or non-pursuit of a disciplinary or capability process
• A contribution to your legal fees, which is a normal and expected cost

It also means timescales are longer than in the private sector. If your agreement requires approval, it will not be signed off in 48 hours, and you should not let anyone tell you the offer expires on Friday.

The NHS Pension Scheme: usually the biggest number on the table

For long-serving NHS staff, the pension consequences of a termination date routinely dwarf the settlement payment. Depending on which section of the scheme you are in, your termination date can affect your final pensionable pay calculation, whether you reach a particular age or service milestone, and how any benefits are actuarially reduced if taken early.

I am a solicitor, not a pensions adviser or an actuary, and NHS pension calculations are genuinely specialist. What I will do is flag where the termination date looks significant and tell you to get a scheme estimate before you agree it. Moving a leaving date by a few weeks costs your employer very little and can be worth a great deal to you. Do not agree a termination date until you know what it does to your pension.

Doctors and dentists: MHPS

Concerns about the conduct, capability or health of doctors and dentists in the NHS are handled under the framework known as Maintaining High Professional Standards in the Modern NHS, alongside the trust's own local procedures.

If a settlement is being discussed against that background, two things need care. First, whether the process has been followed properly, because procedural failures affect both the fairness of any eventual dismissal and the value of what you are being asked to waive. Second, the interaction with regulatory obligations. A settlement agreement cannot lawfully prevent you making a protected disclosure, and it cannot displace a professional duty to report to the GMC or GDC. Any clause that appears to do so needs challenging, and its presence tells you something about how the agreement was drafted.

What I check in an NHS settlement agreement

• Whether the payment merely reproduces your Handbook entitlement or genuinely adds to it
• Whether the correct Handbook section has been applied to your circumstances
• The termination date, tested against pension milestones, notice and annual leave
• The tax treatment, in particular the split between compensation and notice pay, which is covered in the tax guide
• Any MARS repayment or re-employment restriction, and how long it runs
• Confidentiality wording, checked against the protected disclosure carve-out and your regulatory duties
• The reference, and whether it is agreed and annexed rather than merely promised
• Whether the waiver of claims is drawn so widely that it purports to cover claims it cannot lawfully cover

The general position on what makes a settlement agreement binding is set out on what is a settlement agreement, and the mechanics of signing on the signing page. Everything on those pages applies to NHS agreements too: the statutory conditions do not change because your employer is a public body.

Key points

• Agenda for Change redundancy pay is contractual, so check whether the offer adds anything at all
• MARS is not redundancy, and the re-employment repayment clause is enforceable
• Payments beyond contractual entitlement are special severance payments and need approval, which is why trusts resist them
• Negotiate the variables that are not special severance payments: date, leave, reference, legal fees
• Get an NHS Pensions estimate before agreeing a termination date. It is often the largest number involved
• No settlement agreement can prevent a protected disclosure or override a GMC or GDC duty