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Settlement Agreements for Employers
Expert help planning protected conversations, drafting settlement agreements and negotiating terms, so employment ends cleanly and your business is protected.
Settlement agreements
A Clean, Agreed End to Employment
A settlement agreement lets you and an employee part ways on terms you’ve both agreed, without the risk of a tribunal claim later.
The employee agrees not to bring certain claims against you, usually in return for a payment. Handled well, it’s quicker, more private and more certain than a long disciplinary, capability or redundancy process.
Handled badly, it can backfire. A poorly planned conversation can be used as evidence against you, and an agreement that doesn’t meet the legal requirements won’t protect you at all. We help you get every step right.
Why employers use them
- A clean break, on agreed terms
- Protection from future tribunal claims
- Confidential, with no public hearing
Thinking about offering a settlement? Speak to us before you have the conversation.
Get a price →When they’re used
When a Settlement Agreement Makes Sense
Settlement agreements can be used in almost any situation where employment is ending, or a dispute needs resolving. The most common are:
Performance or capability concerns
When improvement hasn’t happened and a long formal process would be costly and stressful for everyone.
Redundancy and restructuring
To agree enhanced terms and reduce the risk of challenges to the selection or consultation process.
Disputes and grievances
Where the working relationship has broken down and both sides would rather move on.
Senior and director exits
Where confidentiality, restrictive covenants and shares or bonuses need careful handling.
Settling an existing claim
To resolve a dispute or tribunal claim on agreed terms, rather than going to a hearing.
Protecting the wider team
When a quiet, respectful exit is better for everyone than a drawn-out process.
What’s included
What Goes Into a Settlement Agreement
Every agreement is different, but most cover the same key terms. We draft or review each one so it protects your business and nothing is missed.
Settlement payment
The amount you’ll pay, and when. Many employers link payment to the signed agreement being returned.
Tax treatment
The first £30,000 of a genuine termination payment can usually be paid tax-free. Salary, notice pay and holiday pay are taxed as normal.
Claims being settled
The specific claims the employee agrees not to bring, such as unfair dismissal or breach of contract.
Confidentiality
Keeping the terms private. This can’t stop an employee whistleblowing or reporting a crime.
Agreed reference
The wording of any reference, so both sides know what future employers will be told.
Announcements and comments
What will be said to colleagues and clients, and an agreement not to make negative comments.
Restrictive covenants
Confirming or updating any restrictions on working for competitors or approaching clients.
Company property
The return of laptops, phones, documents and any confidential information.
Legal fees
A contribution towards the employee’s independent legal advice, which is needed for the agreement to be valid.
Need an agreement drafted or checked? We’ll make sure it’s clear, complete and legally valid.
Get a price →Before you start
Protected Conversations Explained
Most settlements start with a conversation. The law gives some protection to these discussions, but only if they’re handled properly.
Plan the conversation before you have it. It’s much harder to fix afterwards.
What a protected conversation is
A pre-termination discussion about ending someone’s employment on agreed terms. What’s said usually can’t be used as evidence in an ordinary unfair dismissal claim.
What it doesn’t cover
The protection doesn’t apply to discrimination, whistleblowing or other automatically unfair dismissal claims, so what you say still matters.
Improper behaviour
Putting undue pressure on an employee, such as threatening dismissal if they refuse or not giving them reasonable time to think, removes the protection.
Without prejudice discussions
Where there’s already a dispute, “without prejudice” rules may give wider protection. We’ll advise which applies to your situation.
Making it binding
How to Make It Legally Valid
A settlement agreement only protects you if it meets strict legal requirements. If it doesn’t, the employee could still bring a claim, even after being paid.
A valid settlement agreement must:
- Be in writing
- Relate to the particular claims or complaints being settled
- Be signed after the employee has had advice from an independent adviser, such as a solicitor
- Name the adviser and confirm they are insured
- State that these legal conditions have been met
Give time to consider. The Acas Code of Practice recommends giving the employee at least 10 calendar days to consider the offer, unless you both agree otherwise.
How it works
Assess the situation
We look at the risks and help you decide if a settlement is the right route, and what to offer.
The conversation
We help you plan and prepare for the protected conversation.
Offer in writing
We draft the agreement and the covering letter setting out your offer.
Advice and negotiation
The employee takes independent advice. We handle any negotiation with their adviser.
Signed and closed
Once signed by both sides and the adviser, payment is made and the matter is closed.
Common mistakes
Settlement Mistakes That Cost Employers
We see the same problems again and again. Each one can leave you exposed to a claim, or paying more than you need to.
You may also need
Related Services
Legal and HR support that often goes hand in hand with a settlement agreement.
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Frequently Asked Questions
Is a settlement agreement legally binding?
Yes, as long as it meets the legal requirements. It must be in writing, relate to the particular claims being settled, and be signed after the employee has had advice from a named, insured independent adviser.
Do we have to pay for the employee’s legal advice?
There’s no legal requirement to, but most employers contribute. The agreement is only valid if the employee has taken independent advice, so paying towards it helps the process move quickly.
Is a settlement payment taxable?
The first £30,000 of a genuine termination payment can usually be paid free of tax and National Insurance. Salary, notice pay and holiday pay are taxed as normal, so it’s important to split the payment correctly.
How long should an employee have to consider the offer?
The Acas Code of Practice recommends at least 10 calendar days, unless both sides agree otherwise. Rushing an employee can count as undue pressure.
What happens if the employee says no?
They’re free to refuse. You can’t penalise them for rejecting an offer, and any normal process, such as a performance review or redundancy consultation, would then continue as it would have done.