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View full libraryA settlement agreement can provide a structured way for an employer and employee to agree the terms of resolving an employment dispute or bringing the employment relationship to an agreed end. However, the process needs to be handled carefully, with the right claims, payments, obligations and legal safeguards clearly identified.
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Dated
[date]
Settlement Agreement
between
[Company name]
and
[Employee name]
THIS AGREEMENT is dated [date]
Parties
[Company name] Limited incorporated and registered in England and Wales with company number [Company registration number] whose registered office is at [Registered Company address] (Company).
[Employee name] of [Employee address] (Employee).
Background
The Employee is employed by the Company from [start date], most recently as [job title] under a contract dated [contract date].
The Employee's employment with the Company shall terminate on [date].
The parties have entered into this agreement to record and implement the terms on which they have agreed to settle any claims that the Employee has or may have in connection with [his | her] employment or its termination or otherwise against the Company (as defined below) or its officers or employees whether or not those claims are, or could be, in the contemplation of the parties at the time of signing this agreement, and including, in particular, the statutory complaints that the Employee raises in this agreement.
The parties intend this agreement to be an effective waiver of any such claims and to satisfy the conditions relating to settlement agreements in the relevant legislation
Agreed terms
1. Interpretation
The following definitions and rules of interpretation apply in this agreement.
1.1 Definitions:
Adviser: [ ] of [ ] .
Board: the board of directors of the Company (including any committee of the board duly appointed by it).
Confidential Information: information in whatever form (including, without limitation, in written, oral, visual or electronic form or on any magnetic or optical disk or memory and wherever located) relating to the business, products, affairs and finances of the Company for the time being confidential to the Company and trade secrets including, without limitation, technical data and know-how relating to the business of the Company or any of its suppliers, clients, customers, agents, distributors, shareholders or management, including (but not limited to) information that the Employee created, developed, received or obtained in connection with their employment, whether or not such information (if in anything other than oral form) is marked confidential.
Copies: copies or records of any Confidential Information in whatever form (including, without limitation, in written, oral, visual or electronic form or on any magnetic or optical disk or memory and wherever located) including, without limitation, extracts, analysis, studies, plans, compilations or any other way of representing or recording and recalling information which contains, reflects or is derived or generated from Confidential Information.
Group Company: the Company, its subsidiaries or holding companies from time to time and any subsidiary of any holding company from time to time.
1.2 The headings in this agreement are inserted for convenience only and shall not affect its construction.
1.3 A reference to a particular law is a reference to it as it is in force for the time being taking account of any
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A settlement agreement is a legally binding agreement between an employer and employee, worker or former worker which sets out the terms agreed to resolve specific employment-related claims or potential claims. It is commonly used where the parties agree that resolving a dispute or bringing the employment relationship to an agreed conclusion is preferable to continuing with formal proceedings.
A settlement agreement is more than a document confirming that someone is leaving. It records a negotiated arrangement between the parties and can restrict an individual's ability to pursue specified employment tribunal or court claims. It therefore needs to reflect the particular circumstances of the case rather than being treated as a standard exit document.
Settlement agreements can arise in many different HR situations. An employer might consider one following a grievance, performance or disciplinary issue, organisational change, workplace dispute or a breakdown in the employment relationship. An employee can also raise the possibility of a negotiated settlement.
The agreement can provide certainty around matters such as the employee's leaving date, notice arrangements, outstanding contractual payments, an additional settlement payment, an agreed reference and other practical arrangements. It can also be used to resolve a particular dispute without necessarily ending employment.
Settlement agreements are most relevant to employers and employees where there is an existing or potential employment dispute or where both parties are considering an agreed exit. HR professionals and business owners will often coordinate the process, while managers may be involved in establishing the background and agreeing the business terms.
The employee will normally need to obtain independent advice before signing. The final agreement should be tailored to the individual circumstances, including the issues that have led to settlement, the payments involved and the claims or proceedings being resolved.
A settlement agreement will commonly identify the parties and employment relationship, explain the agreed arrangements and set out the payments due. It can also address the specific claims being settled, existing proceedings, an agreed reference, confidentiality, company property and any continuing obligations that are intended to remain in place.
The agreement should also record the employee's independent adviser and the relevant confirmations required for the settlement to have its intended legal effect. Where the employee is leaving, HR should ensure that the agreement works alongside the normal payroll and offboarding process rather than treating the signed document as the end of the HR work.
No. Although they are frequently used to agree the terms of an employee's departure, settlement agreements can also resolve a specific employment dispute while employment continues. The terms should therefore reflect the outcome actually agreed rather than assuming that termination is always involved.
No. A settlement agreement is voluntary and neither party is required to accept the proposed terms. There may be negotiation before an agreement is reached, including changes to the financial offer or other practical provisions.
A settlement agreement should normally be considered as part of the wider employee relations process. Before making an offer, HR should understand the underlying issue, consider potential claims and assess whether another route, such as a grievance, disciplinary, capability or performance process, would be more appropriate.
Once an agreement is reached, HR still needs to implement the practical arrangements accurately. This can include calculating final payments, arranging payroll, providing an agreed reference, recovering company property and retaining appropriate records.
An ordinary termination letter communicates an employer's decision or confirms an agreed employment arrangement. A settlement agreement is a negotiated contract designed to record mutually agreed terms and, where the statutory requirements are met, settle specified employment claims.
Related HR resources and workflow
Explore the HR resources that may be relevant before and / or after using the Settlement agreement, helping you understand the wider process, maintain appropriate documentation and follow a consistent approach.
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.
A legally binding agreement used to settle specific employment claims or potential claims, often alongside agreed terms for ending employment.
No. Settlement agreements are voluntary. An employee can reject the proposal or negotiate different terms with the employer.
Yes. The employee must receive advice from an appropriate independent adviser for the agreement to validly waive the relevant employment claims.
There is no standard settlement amount. The appropriate figure will depend on the circumstances, potential claims, contractual entitlements and the risks and costs of continuing the dispute.
Acas recommends allowing at least 10 calendar days for the employee to consider the formal terms and obtain independent advice.
It provides a structured, practical starting point based on UK HR practice, employment law and Acas guidance, helping you work through the key issues without starting from a blank page.
AI can produce convincing legal wording, but it may miss important HR considerations or make assumptions about your circumstances. HRDocBox provides a structured HR resource designed around the practical process as well as the document itself.
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 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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