Settlement agreement templates toolkit

What are Settlement Agreements?

A Settlement Agreement is a legally binding contract made between an employee and employee. It is usually entered into at the termination of employment and sets out the full terms between the parties.

Settlement agreements can also be used to resolve an ongoing workplace dispute, for example, a dispute over holiday pay. These agreements can be proposed by either an employer or an employee, although it will normally be the employer.

Once a valid settlement agreement has been signed, the employee will be unable to make an employment tribunal claim about any type of claim which is listed on the agreement.

Where the employer and employee are unable to reach an agreement, the settlement discussions cannot usually be referred to as evidence in any subsequent unfair dismissal claim. Where the settlement discussions are held to resolve an existing dispute between the parties they cannot be used as evidence in any type of claim.

Settlement agreement templates are essential for managing a low-risk, compliant Settlement agreement process.

Common mistakes

Understand the common mistakes employers can make when managing this area of HR, helping you reduce risk, prevent unnecessary costs and ensure the process is handled fairly, consistently and correctly.

• Using the agreement as a threat – Presenting a settlement as something the employee must accept rather than a voluntary negotiated arrangement.
• Using an unsuitable template – Failing to ensure the agreement reflects the specific circumstances of the proposed settlement.
• Ignoring legal requirements – Failing to ensure the agreement meets the requirements for a valid settlement agreement.
• Rushing the employee – Pressuring the employee to sign without giving appropriate time and opportunity to obtain advice.
• Leaving terms ambiguous – Failing to clearly document what each party has agreed.
• Forgetting related payments – Failing to clearly address notice, holiday, salary and other amounts due.
• Ignoring confidentiality and references – Failing to consider practical matters that may be important to the agreed exit.
• Assuming signature means everything is resolved – Failing to check that the agreement actually covers the intended claims and arrangements.

What is a typical settlement agreement process workflow?

Here we show you which resources to use to effectively agree a settlement termination, taking into account the different decisions and directions that are likely / possible.

Following this flowchart will ensure that you factor in all eventualities, follow legal / code of conduct or best practice processes, communicate effectively, and reduce the risk of things going wrong.

FAQs

What is a settlement agreement?

A settlement agreement is a legally binding agreement between an employer and employee which can be used to resolve or settle particular employment claims or disputes, usually in return for agreed terms.

When might an employer use a settlement agreement?

Settlement agreements may be used in situations such as negotiated exits, workplace disputes or other circumstances where the parties want to agree specific terms for ending or resolving employment matters.

Does an employee need legal advice?

For a settlement agreement to be legally binding in respect of statutory employment claims, the employee must receive independent legal advice from an appropriately qualified adviser.

Can a settlement agreement be negotiated?

Yes. Settlement agreements are commonly negotiated, and the final terms will depend on the circumstances and what the parties agree.

Does signing a settlement agreement end employment?

It can form part of an agreed termination arrangement, but the agreement should clearly set out the terms and timing of the employment ending.

Why use HRDocBox to support settlement agreements?

HRDocBox combines real-world HR experience, subject-matter expertise and commercial understanding to support settlement agreement processes with practical, tried-and-tested resources. With instant access, editable documents, ongoing updates and 12 months' access, you get practical HR support when you need it.