Equality Act 2010 & Employment Law Guide
Discrimination Settlement Agreements UK: Compensation, Vento Bands & Tax Rules (2026)
Unlike ordinary unfair dismissal awards, which are strictly capped at £123,543, compensation for unlawful discrimination under Section 124 of the Equality Act 2010 is completely uncapped. In 2026, discrimination settlements combine past and future financial loss with injury to feelings awards assessed under the Ninth Addendum Vento bands, which range from £1,300 to over £62,900. Furthermore, under Section 406 of the Income Tax (Earnings and Pensions) Act 2003, payments for injury to feelings arising before dismissal are 100% tax-free with no £30,000 ceiling.
Key discrimination settlement facts for 2026
- Discrimination compensation is completely uncapped under Section 124 of the Equality Act 2010.
- You do not need two years of continuous service. Protection applies from day one of your employment or recruitment.
- Injury to feelings compensation follows the Ninth Addendum Vento bands, ranging from £1,300 to more than £62,900.
- Section 111A protected conversation rules do not apply to discrimination. Employers cannot keep discriminatory discussions confidential.
- Pre-termination injury to feelings awards are 100% tax-free under ITEPA 2003 s.406, outside the standard £30,000 limit.
- Your employer covers the cost of your independent legal advice, typically contributing £350 to £750 plus VAT.
Uncapped compensation under the Equality Act 2010
In UK employment law, discrimination claims carry significant financial exposure for employers. Under Section 124 of the Equality Act 2010, an employment tribunal can award financial compensation without any statutory ceiling 1.
This stands in direct contrast to standard unfair dismissal. For ordinary unfair dismissal, compensatory awards are capped at the lower of £123,543 or 52 weeks of gross pay under SI 2026/310 2.
You also enjoy day-one protection. You do not need two years of continuous service to bring a discrimination claim or negotiate a departure package based on discriminatory treatment. Protection extends across all nine protected characteristics:
Because tribunal compensation is uncapped, initial settlement offers that only match statutory redundancy or basic notice pay are well below the typical range for discrimination cases. Employers settle to avoid public tribunal findings, substantial reputational damage, and uncapped financial liability.
| Feature | Ordinary Unfair Dismissal | Discrimination Claim |
|---|---|---|
| Compensatory Cap | £123,543 or 52 weeks' pay (SI 2026/310) | Completely uncapped (Equality Act s.124) |
| Qualifying Service | 2 continuous years required | 0 days (Day-one statutory protection) |
| Injury to Feelings | Not available | Available under Vento bands (£1,300 to £62,900+) |
| Protected Discussions | Covered by Section 111A ERA 1996 | Excluded (Section 111A does not apply) |
| Weekly Pay Cap | £751 per week (ERA 1996 s.227) | Does not restrict financial loss calculations |
Vento Bands 2026: Injury to feelings calculations
When an employer discriminates against you, compensation is not limited to lost salary. You are entitled to an award for injury to feelings.
Employment tribunals calculate injury to feelings using brackets known as Vento bands. These bands originate from the landmark case Vento v Chief Constable of West Yorkshire Police [2002] and are updated annually.
For claims and settlements presented on or after 6 April 2026, the Ninth Addendum to the Presidential Guidance sets the following rates 3:
Lower Band
£1,300 to £12,600Applies to less serious cases, such as an isolated comment, a one-off act of low-level harassment, or an accidental discriminatory oversight that was quickly corrected.
Middle Band
£12,600 to £37,700Applies to serious incidents that do not warrant an upper band award. Examples include discriminatory dismissal, sustained bullying, discriminatory demotion, or persistent refusal to implement reasonable adjustments.
Upper Band
£37,700 to £62,900Reserved for the most serious cases. Typical scenarios involve extended campaigns of discriminatory harassment, severe victimisation after reporting discrimination, or systemic exclusion resulting in significant psychological distress.
Exceptional Cases
Exceeding £62,900Awarded in rare and extreme circumstances where prolonged, malicious discrimination causes catastrophic psychiatric harm, lifelong loss of career prospects, or severe personal distress.
When negotiating a settlement agreement, your solicitor uses these bands to benchmark the injury to feelings element of your payment.
A solid medical report, witness statements, or a written grievance trail will support placement in the middle or upper Vento band.
Tax rules for discrimination settlements: Section 403 vs Section 406
Tax treatment is one of the most critical elements of any discrimination settlement agreement. Structuring the payment correctly can save thousands of pounds in tax.
UK tax law draws a sharp legal distinction between termination payments and compensation for pre-termination discrimination:
Pre-Termination Injury to Feelings
Under Section 406 of the Income Tax (Earnings and Pensions) Act 2003, compensation for injury to feelings related to discrimination occurring before and distinct from dismissal is 100% tax-free 4.
There is no £30,000 threshold. It is completely exempt from income tax and National Insurance contributions.
Termination Compensation
Under Section 403 of ITEPA 2003, compensation paid directly for the loss of your employment is tax-free up to £30,000 5.
Any excess above £30,000 is subject to income tax. Injury to feelings directly connected with the dismissal itself also falls under this £30,000 cap.
Notice Pay (PILON) Is Always Taxable
Under Section 402D of ITEPA 2003, Payment in Lieu of Notice (PILON) is classified as Post-Employment Notice Pay (PENP) 6.
Your employer must deduct income tax and Class 1 National Insurance from all notice pay. It cannot be disguised as tax-free compensation. For a detailed calculation breakdown, consult our guide on PILON tax treatment.
Your settlement agreement must explicitly apportion the settlement into distinct sums: notice pay, ex-gratia termination compensation, and pre-termination injury to feelings. Clear wording prevents HMRC from challenging the tax-free status. Read our complete guide to the £30,000 settlement exemption.
Section 111A and Without Prejudice exceptions: Employers cannot hide
When an employer opens settlement discussions, they often label communications as a "protected conversation" under Section 111A of the Employment Rights Act 1996, or as "without prejudice".
Many employers wrongly believe this shields them from liability. Under UK law, these protections have strict legal boundaries.
1. Section 111A Does Not Apply to Discrimination
Section 111A ERA 1996 protects pre-termination negotiations exclusively in standard unfair dismissal cases 7.
Under Section 111A(4), the confidentiality shield does not apply to claims under the Equality Act 2010 or whistleblowing claims.
If an employer uses a settlement meeting to make discriminatory comments, or if the conversation itself forms part of an act of discrimination, you can disclose everything said in that meeting before an employment tribunal. If your situation involves long-term sickness absence or health capability issues, see our dedicated guide to settlement agreements on sick leave.
2. Without Prejudice Rules and Unambiguous Impropriety
Common law without prejudice privilege only applies if there is already an existing, genuine dispute between you and your employer.
Furthermore, the privilege does not protect unlawful acts or "unambiguous impropriety". An employer cannot use without prejudice discussions to deliver discriminatory ultimatums.
This gives you substantial leverage. Because the employer cannot hide their conduct behind statutory confidentiality, they are far more motivated to reach an agreed settlement outside of public court proceedings.
Legal validity and the Bathgate v Technip rule
Under Section 203(3) of the Employment Rights Act 1996 and Section 144 of the Equality Act 2010, you cannot waive your statutory rights in a private document unless strict formal requirements are met 8.
To be legally binding, the settlement agreement must:
- Be made in writing and relate to the particular proceedings or complaints raised.
- Confirm you received independent legal advice from a qualified, insured solicitor or certified trade union adviser.
- Identify the adviser by name and confirm their professional indemnity insurance policy is in place.
- State explicitly that the statutory conditions regulating settlement agreements are satisfied.
Waiving Unknown Future Claims: Bathgate v Technip
Employers often attempt to include broad waivers stating that you give up "all claims of any nature, whether known or unknown, arising in the past, present, or future".
The landmark appellate decision in Bathgate v Technip Singapore PTE Ltd [2023] CSIH 48 clarified this practice 9. The court held that a settlement agreement can settle future claims, but only if the wording is clear and refers to the specific category of claim contemplated by the parties.
Blanket boilerplate clauses cannot extinguish rights that the parties could not reasonably have foreseen. Your solicitor will review the waiver terms carefully to protect you from unintended forfeitures.
Employer Covers Your Legal Fees
Your employer covers the cost of your independent legal advice. The typical employer contribution is between £350 and £750 plus VAT.
Your solicitor invoices your employer directly. You do not pay this out of your own pocket. If negotiations require extended redrafting, your solicitor can request an increased contribution from your employer.
4-step negotiation process for discrimination settlements
Negotiating a fair settlement requires a structured approach. Follow these four practical steps to protect your position:
Document all discriminatory conduct
Keep a private, contemporaneous timeline of incidents. Save relevant emails, chat logs, performance appraisals, and records of meetings. If you experienced stress or health effects, obtain medical notes from your GP.
Quantify your true financial and emotional loss
Calculate your actual financial losses, including lost salary, pension, and benefits while seeking comparable employment. Benchmark your injury to feelings under the 2026 Ninth Addendum Vento bands.
Submit a detailed grievance or without-prejudice response
Respond to the employer's initial proposal with a clear counteroffer. Outline the uncapped nature of the tribunal risk they face and the inapplicability of Section 111A confidentiality.
Finalise terms with your independent solicitor
Your solicitor checks the agreement, negotiates an agreed job reference, confidentiality wording, and tax indemnities. Your employer pays the solicitor's invoice directly.
To learn more about negotiation tactics, read our detailed guide on how to negotiate a settlement agreement or evaluate settlement agreements versus employment tribunals.
Official independent resources
If you are facing discrimination at work, you can access free, confidential guidance from official UK statutory bodies:
ACAS (Advisory, Conciliation and Arbitration Service)
Free, impartial guidance on UK employment law and early conciliation support.
Equality Advisory and Support Service (EASS)
Official government helpline advising on discrimination under the Equality Act 2010.
GOV.UK Employment Tribunals
Official government guidance on lodging claims, tribunal fees, and hearing procedures.
Legislation.gov.uk
Access original UK statutes including the Equality Act 2010 and SI 2026/310.
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Evaluate your compensation against 2026 statutory caps, calculate your tax-free allowance, and check if your offer is fair.
Calculate my settlement now →Frequently asked questions
How much compensation can I receive for a discrimination settlement in the UK?
Compensation for discrimination under Section 124 of the Equality Act 2010 is completely uncapped. Your settlement usually includes financial loss (lost salary and pension) plus an injury to feelings award based on the 2026 Vento bands (£1,300 to over £62,900).
What are the current Vento bands for injury to feelings in 2026?
Under the Ninth Addendum to Presidential Guidance (in effect from 6 April 2026), the Vento bands are: Lower Band (£1,300 to £12,600), Middle Band (£12,600 to £37,700), Upper Band (£37,700 to £62,900), and Exceptional Cases (over £62,900).
Is injury to feelings compensation taxable in a settlement agreement?
Under ITEPA 2003 s.406, compensation for injury to feelings related to discrimination occurring before termination is entirely tax-free with no £30,000 cap. If the injury to feelings relates directly to the dismissal itself, it falls under s.403 and counts towards the standard £30,000 exemption.
Can my employer keep settlement discussions secret if discrimination occurred?
No. Section 111A of the Employment Rights Act 1996 covers protected conversations only for standard unfair dismissal. It does not apply to discrimination or whistleblowing. Employers cannot hide behind protected conversation rules if discriminatory conduct took place.
Does my employer pay for my independent legal advice?
Yes. For a settlement agreement to be legally valid under Section 203 of the Employment Rights Act 1996 and Section 144 of the Equality Act 2010, you must receive independent legal advice. Your employer covers this fee, which typically ranges from £350 to £750 plus VAT.
Can a settlement agreement waive unknown future discrimination claims?
Under the leading case of Bathgate v Technip, an agreement cannot use broad generic wording to waive unknown future claims that the parties could not have contemplated. Any waiver must identify the specific statutory claims being settled with absolute clarity.
References and Legislation
- Equality Act 2010, Section 124 (tribunal remedies and uncapped compensation)
- The Employment Rights (Increase of Limits) Order 2026 (SI 2026/310)
- Presidential Guidance: Employment Tribunal awards for injury to feelings and psychiatric injury (Ninth Addendum, applicable from 6 April 2026)
- Income Tax (Earnings and Pensions) Act 2003, Section 406 (exception for injury)
- Income Tax (Earnings and Pensions) Act 2003, Section 403 (£30,000 threshold)
- Income Tax (Earnings and Pensions) Act 2003, Section 402D (post-employment notice pay)
- Employment Rights Act 1996, Section 111A (pre-termination negotiations and exceptions)
- Employment Rights Act 1996, Section 203 & Equality Act 2010, Section 144 (statutory settlement validity)
- Bathgate v Technip Singapore PTE Ltd [2023] CSIH 48 (settlement of future claims under Equality Act 2010)
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