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A carefully worded letter for employers who wish to open discussions with an employee about a potential settlement agreement and propose an agreed financial and employment exit arrangement.
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This template brings together the key information, sections and considerations you need to create a clear, comprehensive and professional HR document. Preview the document below.
[Sender name]
[Sender address]
[date]
[Recipient name]
[Recipient address]
Dear [Recipient first name],
Confidential settlement proposal - Without Prejudice and subject to S111A Employment Rights Act 1996
We are writing to you because, as you are aware, we have had some concerns about your [conduct/attendance/performance] [delete as appropriate and specify sufficient detail about previous disciplinary/performance management action taken, and about the ongoing concerns, to allow the employee to make an informed decision about his/her options].
We consider that, in these circumstances, one option is to offer you a settlement agreement to bring our employment relationship to an end, and we invite you to consider the proposal set out below.
If we are unable to reach such an agreement, then you should be aware that it is our intention to proceed to the next stage of our disciplinary [or performance management] procedure [insert brief details of where the employee can reasonably access the appropriate written procedure.] I will therefore convene a disciplinary meeting to make a decision on these concerns, and that this could result in your dismissal.
You should note that there is no obligation for you to enter into discussions with us in relation to this proposal. If you choose to do so or not, please also note that any correspondence
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When an employer wants to explore whether an employment relationship can be brought to an agreed conclusion, a settlement agreement may provide a structured way of doing so. This letter provides a starting point for those discussions, setting out the proposed terms without presenting the employee with a completed legally binding agreement.
The letter can be used following an initial conversation or as the written starting point for discussions. It explains that the employer is proposing a settlement agreement and provides enough information for the employee to understand the broad basis of the proposal.
The template provides space to explain the proposed termination date, notice arrangements, outstanding contractual payments and any additional settlement payment being offered. It can also record proposed contributions towards the employee's independent legal advice.
A settlement agreement is voluntary and the employee should be given a reasonable opportunity to consider the proposal and obtain independent advice. Acas recommends allowing at least 10 calendar days to consider formal written terms, unless the parties agree otherwise. https://www.acas.org.uk/settlement-agreements/making-a-formal-offer
The proposal letter is not itself the settlement agreement. If the employee wishes to proceed, the parties can negotiate the terms and prepare a formal agreement which satisfies the statutory requirements, including the requirement for independent advice. https://www.acas.org.uk/settlement-agreements
Related HR resources and workflow
Explore the HR resources that may be relevant before and / or after using the Settlement agreement proposal letter, helping you understand the wider process, maintain appropriate documentation and follow a consistent approach.
The Protected Conversation Script provides a structured framework for HR professionals and managers to conduct a confidential pre-termination discussion with an employee where the employer is considering an agreed exit.
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.
Use these best practice actions, recommended timescales and process stages to understand when and how the Settlement agreement proposal letter should be used, helping ensure each step is handled consistently and appropriately documented.
Understand the common mistakes to avoid when using this HR template, helping you reduce risk, prevent unnecessary costs and ensure the process is handled correctly.
No. A proposal letter is intended to open discussions and set out proposed terms. It should make clear that any agreement is subject to contract and that the terms remain subject to negotiation until a formal settlement agreement is signed.
No. Settlement agreements are voluntary. The employee can reject the proposal, negotiate different terms or choose not to participate in settlement discussions. https://www.acas.org.uk/settlement-agreements/discussing-and-negotiating-an-offer
Employees should be given a reasonable period to consider the offer and obtain independent advice. The Acas Code recommends at least 10 calendar days for considering formal written terms, although individual circumstances may justify a longer period.
No. There is no general requirement for an employer to pay the employee's legal fees. However, Acas recommends that employers consider contributing towards the cost of independent advice, and it is common for settlement agreements to include an agreed contribution.
Yes. A settlement proposal is not necessarily a final offer. The employee can ask questions, propose different terms or make a counter-offer. Any final terms should be recorded in the formal settlement agreement.
AI can produce a generic settlement letter, but settlement agreements involve specific UK employment law requirements and can have significant legal and financial consequences. HRDocBox provides a structured UK-focused starting point that addresses voluntariness, independent advice, consideration periods, proposed termination arrangements and the distinction between the proposal and the formal settlement agreement. It should still be reviewed and adapted to the individual circumstances, with legal advice where appropriate.
How this content is developed and reviewed
The Settlement agreement proposal letter template is developed using a practical HR methodology that considers current UK employment legislation, ACAS guidance, CIPD good practice and the real-world HR process it supports. Templates and supporting information are regularly reviewed and updated, with additional reviews triggered by significant changes to legislation, guidance or established HR practice, helping ensure each document remains practical, relevant and suitable for UK employers.
Darryl Horn, Chartered HR Director
Darryl is a Chartered HR professional with over 25 years' experience in senior HR and employee relations roles.
He has extensive practical experience of managing settlement agreement HR processes and founded hrdocbox to provide businesses with practical, professionally developed HR resources grounded in UK employment law and best practice.
HRDocBox has been creating practical UK HR documents since 2009.
"Darryl provides support and advice with excellent judgement, and has a strong understanding of people, policies and UK employment legislation."
"He is someone I trust; consistent, dependable, and committed to doing things properly."
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