Settlement agreement

An employee cannot normally contract out of their statutory employment rights. Section 203 of the Employment Rights Act 1996 makes any such agreement void, with a narrow exception for a settlement agreement that meets defined conditions. That is the whole architecture of this document: it buys a clean break, and it does so only if the conditions are satisfied.

The conditions, and the one employers try to economise on

The agreement must be in writing, relate to the particular complaint, and identify the adviser. The employee must have received advice from a relevant independent adviser on the terms and effect of the agreement and on its effect on their ability to pursue a claim. That adviser must be covered by insurance or a professional indemnity arrangement, and must sign the certificate at Schedule 2.

The advice is not a formality to be rushed. An employer who presents the agreement on a Friday afternoon and asks for it back on Monday has not given proper time, and a waiver signed in those circumstances is exactly the one that gets challenged. Employers commonly contribute to the employee's legal costs for this reason, and it is money well spent on the employer's side of the table.

What the template asks you to settle

Clause 2 offers two notice options: worked or paid in lieu. The payment breakdown matters for tax as well as for clarity, because the treatment of a termination payment depends on what it is for. The rules on post-employment notice pay mean that the part of a payment representing notice is taxable as earnings whatever the parties call it, so the calculation should be checked with your accountant or payroll provider before the money moves rather than after.

Schedule 1 carries the agreed reference and any announcement. Both are worth settling in the document: a reference dispute after the event is a poor end to a negotiated exit.

Keep the correspondence protected

Mark everything "without prejudice and subject to contract" until the agreement is signed. Without prejudice protects a genuine attempt to settle an existing dispute from being shown to a tribunal. Where there is no existing dispute, the separate protected conversations rule under section 111A of the Employment Rights Act 1996 allows a pre-termination negotiation to be kept out of an ordinary unfair dismissal claim, but it does not cover discrimination or automatically unfair dismissal claims, which is the trap.

When not to reach for this document

It is not a confidentiality agreement, and an NDA should never be used as settlement terms with an employee. A settlement that attempts to prevent someone reporting a crime, making a protected disclosure or speaking to a regulator does not achieve that, and attempting it is itself a poor look.

Employment claims carry no cap for discrimination and no qualifying period, so this is a document to take advice on rather than to complete. Our employment law and HR solicitors handle exits from the first conversation.