Settlement agreement template
A settlement agreement is the legally binding agreement an employer and employee sign when they agree the terms of an exit: the leaving date, any payment in lieu of notice, a settlement payment, and the claims the employee agrees not to bring. It is usually sent after a without prejudice or protected conversation, once the terms are agreed. The employee must take advice from an independent adviser before signing, so the adviser's details and certificate form part of it.
Contains public sector information licensed under the Open Government Licence v3.0. Source: ACAS (Crown copyright).
Binding only once the employee has had independent legal advice from the adviser named in it.
What changes each time
19 values. Everything else is your wording, kept exactly.
The parties
- Employer name
- Employee name
- Job title
- Employment start date
Leaving and notice
- Termination date
- Weeks of pay in lieu of notice
- What the PILON comprises
- Post-employment notice pay (PENP)
Money
- Settlement payment
- Party giving the tax indemnity
- Legal costs contribution
Terms and claims
- Confidentiality clauses in the employment contract
- Return of company property
- Where the agreed reference is set out
- Employment tribunal claims already presented
- Other claims being settled
The adviser
- Adviser's name
- Adviser's organisation
- Adviser's address
The rules it usually needs
Written in plain English when the template is set up.
- The AI decides from the paperwork
“Include the confidentiality clause only when the parties have agreed to keep the agreement confidential.”
The agreed-terms email said both sides would keep the terms confidential, so clause 8 was included, with that reason shown.
- One of several wordings
“Notice: either continuing wages up to the leaving date, or a payment in lieu of notice (PILON).”
The paperwork agreed 8 weeks' PILON, so the PILON wording, with its PENP figure, was used.
- Only when…
“Say "the first £30,000 of" the settlement payment only when the payment is more than £30,000.”
The payment was £22,500, so clause 5.2 refers to the whole payment.
- One of several wordings
“Governing law and third-party rights: England and Wales, or Scotland.”
England and Wales by default, as set in the template.
Questions people ask
Does the employee need legal advice before signing a settlement agreement?
Yes. For the agreement to settle statutory employment claims, the employee must receive advice on its terms and effect from a relevant independent adviser, such as a solicitor, who is named in the agreement and signs a certificate. Employers often contribute to the cost of that advice.
Is a settlement payment tax-free?
Often the first £30,000 of a termination payment that is not otherwise taxable can be paid without tax, but pay in lieu of notice and post-employment notice pay are taxed as earnings. The agreement records what both sides believe; check the tax treatment of your own case with HMRC guidance or an adviser.
What is the difference between a without prejudice conversation and a protected conversation?
Both let an employer and employee discuss an exit without what is said being used as evidence later. Without prejudice applies where there is an existing dispute; a protected conversation under section 111A of the Employment Rights Act 1996 can happen without one, but only protects against unfair dismissal claims.
How long should an employee have to consider a settlement agreement?
The ACAS Code of Practice on settlement agreements suggests a minimum of 10 calendar days to consider the terms and take advice, unless the parties agree otherwise.
Can I use my firm's own settlement agreement instead of this one?
Yes. Upload your own Word or PDF version and DocuWeave turns it into a template in your wording, with the same kind of rules and the same filling from paperwork.
Use this template
It opens in DocuWeave as a template you can check, change and publish. Nothing is used until you do.