Settlement agreement cover letter template
Use this model letter when you have reached a settlement agreement with an employee who will be leaving your employment as a result, to enclose the settlement agreement.
The reasons for the exit should relate to unsatisfactory conduct, attendance or performance issues on the part of the employee.
- 2 pages / 300 words.
- Last updated 16/09/2025.
- Designed for United Kingdom use.
- Suitable for use in other territories; check local laws first.
- Instantly download as Word / PDF / plain text, or send by email.
- Includes 12 months’ access, with all updates to this page provided free of charge and notified to you.
Settlement agreement cover letter
[Sender name]
[Sender address]
[date]
[Recipient name]
[Recipient address]
Dear [Recipient first name],
Without Prejudice and subject to S111A Employment Rights Act 1996
We are writing to you regarding the proposed settlement agreement that has been offered to you. This agreement has been offered to you following discussions between you and your employer, [Company Name], and sets out the terms and conditions of your departure from the company.
As you are aware, the purpose of this settlement agreement is to resolve any potential disputes between you and [Company Name] and to ensure a smooth and amicable departure from the company. We believe that this settlement agreement represents a fair and reasonable offer,
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A Settlement Agreement cover letter is typically used to introduce and accompany a Settlement Agreement, which is a legally binding contract between an employer and employee that sets out the terms of the employee's departure from the company, usually in exchange for a financial settlement.
The purpose of a Settlement Agreement cover letter is to provide context and explain the terms of the agreement to the employee, as well as to provide instructions on how to proceed with signing the agreement. The cover letter should typically include:
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A brief explanation of the circumstances leading to the agreement
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A summary of the terms of the agreement, including any financial settlement or other benefits offered
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An explanation of the legal implications of signing the agreement
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Any relevant deadlines or other important information
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Contact information for any legal representatives who may be involved in the process
In summary, a Settlement Agreement cover letter is an important document that helps to ensure that the terms of the agreement are clearly communicated to the employee, and that the agreement is executed in a legally valid manner.
The settlement offer must be a genuine attempt to settle an existing dispute, i.e. a situation where you or the employee has brought, or might reasonably be expected to bring, legal action against the other and that this situation is ongoing at the time this settlement offer is made.
An existing dispute is likely to be true if, for example, you've previously warned the employee that unless their performance or behaviour improves, disciplinary action will be taken, which could result in their dismissal, or an employment relationship has already ended and the employee has taken action against your business, or has indicated that they intend to do so.
It is usually delivered to the Employee by the Employer / HR.
Compliance
Compliance
This Settlement agreement cover letter template incorporates relevant UK laws and HR standards, including those listed below:
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Employment Rights Act 1996: Provides the legal framework for settlement agreements and the documentation associated with them.
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Equality Act 2010: Ensures that the language and content of the cover letter do not breach anti-discrimination laws or prejudice fairness.
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The ACAS Code of Practice on Settlement Agreements: Offers guidance on communication and documentation related to settlement agreements, including cover letters.
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Data Protection Act 2018 (incorporating GDPR): Requires that personal data within the cover letter complies with data protection principles.
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Common Law Principles: Legal principles and precedents guide the content and context of settlement agreement cover letters.
Flowchart
Flowchart
Check which resources should be implemeted before and/or after the Settlement agreement cover letter template, to understand the workflow.
Settlement agreement proposal letter
Use this model settlement agreement proposal letter to enter discussions with an employee about ending their employment relationship.
Settlement agreement
Our Settlement Agreement Template facilitates fair and clear resolution, easing legal processes for both parties involved in employment separation.
Frequently Asked Questions
Frequently Asked Questions
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Can I use this template in my small business?
Yes. The Settlement agreement cover letter template is designed to be flexible and suitable for organisations of all sizes, including small businesses and charities. It follows UK employment law best practice, so even if you don't have an in-house HR team, you can confidently apply it.
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Is this template compliant with 2025 UK employment law?
Absolutely. All of our templates are drafted with the latest ACAS guidance and UK employment legislation in mind. We review and update them regularly, so you can be confident they remain compliant.
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Can I customise it for my organisation?
Yes, we highlight the areas that you need to update with your own details, and where you need to make decisions to suit your situation. This saves you time and ensures that you meet best practice.
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Do I get instant access?
Yes. Once purchased, you'll be able to download it instantly. Templates are provided in editable Word or Excel format so you can customise them easily, and in PDF format for easy sharing.
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What if I need more help, not just this template?
If you're looking for broader support, we also offer toolkits and library bundles that include this template, along with other HR templates and policies for fully managing your situation. These may be more cost-effective if you need deeper advice.
