Is a settlement agreement legally binding?

Yes. Once a settlement agreement is properly signed by both parties and any conditions in it are satisfied, it is a binding contract. That is precisely the point: it gives both sides certainty that the agreed claims are closed and the agreed payments will be made.

For an agreement that settles statutory claims (such as unfair dismissal or discrimination) to be valid, it must meet the conditions set out in section 203 of the Employment Rights Act 1996 and equivalent provisions in other legislation. In particular, it must be in writing, relate to particular claims, identify your independent legal adviser, and you must have received advice on its terms and effect. If those conditions are not met, the waiver of statutory claims will not be effective.

Because the agreement is binding, it is essential to understand exactly what you are giving up before you sign. That is why independent legal advice is a legal requirement, not just a formality.

Because the agreement is binding, both sides gain finality: you cannot be pursued for the claims you have settled, and your employer cannot renege on the agreed payment. That mutual certainty is valuable, but it cuts both ways — which is exactly why the law insists you take advice before locking yourself in.