Agreeing a settlement package with an employee offers a number of benefits to an employer.

A settlement agreement is a clean break arrangement, allowing both parties to walk away with the certainty of knowing where they stand. As an employer, you will be protected by the employee’s agreement not to pursue any legal claims against you as well as their undertaking to keep matters confidential.

When is a settlement agreement appropriate?

If you wish to end someone’s employment (maybe because you don’t need them anymore or there are serious performance or disciplinary issues) a settlement agreement is often a quick, cost-effective way of doing this.

Settlement Agreement Form

By entering into a settlement agreement with your employee you can pay them a sum of money in return for their agreement not to pursue any claims against you and (for instance) for them leaving without working out their notice period or without the necessity of going through a sometimes-lengthy termination process.

Other clauses can also be included in settlement agreements, such as a restriction of your employee’s ability to set up nearby in direct competition, their agreement not to make any adverse comments about your organisation and confidentiality (or non-disclosure).

Take care and be prepared

You need to be careful about suggesting a settlement agreement, as this itself may be taken as an unlawful detriment or as indicating a breakdown of trust and confidence. There are a few ‘technical’ ways around this (see below), but the best advice is to proceed with caution, and be prepared for what may happen should the agreement not be signed. An employment solicitor is the best person to help with this.

Protected conversations

If you intend to speak to an employee about them leaving, your conversations will not usually be disclosed to a court or an employment tribunal because of legislation covering pre-termination negotiations. This classifies these discussions as ‘protected conversations.’ If the matter did end up before an employment tribunal then the conversations would not be revealed if the allegation was normal unfair dismissal.

If the case is for something other than unfair dismissal or one where the dismissal would be ‘automatically’ unfair (for instance, dismissal on the grounds of discrimination or because of whistleblowing) then conversations and correspondence will not be protected and could be put before the tribunal.

The intention is to allow an employer to have a frank and open conversation to aid the drawing up of a mutually acceptable settlement agreement. For more information, see our article Pre-term negotiations or ‘protected conversations’.

‘Without prejudice’

If you are in a dispute with an employee, then you can mark correspondence ‘without prejudice’ or make it clear that discussions are on a without prejudice basis. Again, where there is already a dispute, this means that they cannot subsequently be revealed, provided there is no discrimination or other similar impropriety.


If you do intend to have discussions about dismissal with an employee, you must be careful to ensure that they will remain confidential, or you could harm your position.

Remain unemotional

There is likely to be a period of negotiation before the final terms are agreed. It is essential to focus on the bigger picture and the good of your business, rather than being drawn into discussions of what has happened in the past that you may feel angry about.

Professional guidance from an experienced employment law solicitor will help you stay detached. It may be that you have to compromise, but once the settlement agreement is in place and your employee has gone, you are free to move on and put past disagreements behind you. In general, this is far better for a business than engaging in drawn-out legal proceedings, which have the potential to be both disruptive and expensive.

Go digital and use virtual meetings

Even if no-one is working in the office or other premises, you can still put a settlement agreement in motion by using email and virtual meetings to agree terms.


Meetings can be arranged with your employee and other attendees as needed, by using online meeting platforms with waiting room and breakout meeting capacity.

Secure email can be used to send proposed drafts of the settlement agreement for consideration and negotiation and it is also possible to sign and witness documents remotely if necessary.

Agree timelines

An employee should be given a reasonable time to consider any offer of a settlement agreement. This is usually at least ten calendar days, as set out in Acas guidelines, but it could be more, or less, in certain circumstances.

Failure to allow a reasonable time for consideration, discussions and negotiation could potentially allow an employee to claim unfair dismissal in any future legal proceedings.

Imposing a timescale will also help keep the process moving and avoid delays.

Share full breakdowns

The settlement agreement should include a full breakdown of the amount being offered and what it is intended to cover.

This could include a lump sum plus payment covering what would have been paid during a notice period, payment for outstanding holiday entitlement and bonuses. Tax and National Insurance will be payable on salary, benefits and bonus entitlement due up to and including the date of termination.

Ex-gratia payments of up to £30,000 that are over and above an employee’s entitlement are generally paid free of tax and National Insurance. By providing a full breakdown of the proposed figure, you can be sure that your employee understands exactly what is included and what will be deducted so that any misunderstandings can be avoided.

Consider non-financial incentives

The most useful non-financial incentive for an employee is usually the provision of an agreed reference. If this is not included in the agreement, then a reference can be limited to a simple statement of the dates worked and duties carried out.

It is beneficial for an employee to be certain of the reference that you will provide to their potential new employer. It can be a strong bargaining chip if they have performed well and you are prepared to say this. You could also agree to refuse to give a reference by way of telephone or response to a questionnaire, to ensure that only the agreed wording is used.


Other potential non-financial benefits include allowing an employee to keep the technology they have been using, such as a phone or laptop, provided that all information relating to your business is deleted or agreeing to let them have any company vehicle for a reduced sum.

Have a backup plan

If your employee believes they have a valid claim against you or that they could do better by not agreeing to a settlement agreement, you should have a clear understanding of what happens next.

There are a number of fair ways to end an employee’s contract and if you understand your rights and have a plan of what you will do if a settlement cannot be agreed then you will feel less pressured into agreeing to something that is not to your advantage. Discuss the options with your legal adviser to ensure that you can move on quickly to your backup plan if need be.

Don’t pay too much to settle

When considering whether to make an employee redundant or try and agree a settlement agreement, do not feel pushed into offering more than you believe is just. If the proposed terms are fair, you should not offer over the odds.

An experienced employment law solicitor will be able to advise you on what is fair and will be able to negotiate robustly on your behalf.

Independent legal advice

By law, an employee must take independent legal advice before signing a settlement agreement as it is a waiver of their rights to bring a claim. It is customary for the employer to contribute towards the cost of this advice so that the employee does not have to fund this from their own pocket.

In summary

As businesses adjust to turbulent economic conditions, it may be necessary to act without delay to try and reduce outgoings over a difficult period. Legal advice for employers will help you find the right solution and minimise difficulties. The settlement agreement allows those involved to make a clean break and face the future with certainty. For employers, being free of the risk of a disruptive claim and being able to reduce workforce numbers can be a big advantage.

Contact Springhouse Employment Solicitors

If you are considering offering an employee a settlement agreement, our experienced employment law solicitors will be happy to help you put together the right offer and negotiate terms where necessary. Contact us today by ringing 0800 048 5888 or fill in our contact form. Our team is ready to give you clear, accurate advice.

Employers have a duty to ensure employees do not have to endure harassment and that they can raise the issue without fear of retribution.


Under the Equality Act, victimisation is detrimental treatment when raising a grievance about discrimination. This could be when making the claim, when giving evidence in respect of a discrimination claim or in saying that someone has breached the Act.

Legal advice in respect of non-binary issues in the workplace

Staying up to date with current legislation and ensuring that employees are not discriminated against in breach of the Act can be difficult.

Putting the right policy documents in place will help employees understand what is expected of them in respect of their fellow workers. There should also be clear procedures for raising grievances as well as rules to protect workers from discrimination.

At Springhouse Employment Solicitors we represent employees whose rights have been breached under the Equality Act, including non-binary individuals and transsexuals. Our team is friendly and approachable and we will advise and support you throughout your case, ensuring that we are always available to speak to you to keep you updated as to progress and answer any questions you may have.

If you believe you have been discriminated against and you would like to talk to someone about your options, we would be happy to hear from you.

We also work with employers to ensure that the legal framework underpinning their business is robust and that it offers protection to employees, which in turn will help ensure that legislation is not breached.

If you have a transsexual or non-binary employee who is claiming discrimination under the gender reassignment protection offered by the Act, you should seek legal advice without delay. In the case of a workplace discrimination claim, an employment tribunal process could potentially award substantial damages to compensate for stress and anxiety as well as for any financial loss.

For more information about gender reassignment and the workplace, see our Transgender employment law factsheet.

Contact Springhouse Employment Solicitors

If you are non-binary or you are employing someone who is non-binary and you would like to speak to a lawyer about discrimination      , our experienced employment law solicitors will be happy to help. Contact us today by ringing 0800 048 5888 or fill in our contact form. Our team is ready to give you clear, accurate advice.

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Updates: For employers: Settlement agreements | For employees: Redundancy | Unfair dismissal |

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