Guidance
Settlement
Agreements
December 2018
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About Acas – What we do
Acas provides information, advice, training, conciliation and other services
for employers and employees to help prevent or resolve workplace
problems. Go to www.acas.org.uk for more details.
‘Must’ and ‘should’
Throughout this guide the word ‘should’ is used to indicate what Acas
considers to be good employment practice, rather than legal
requirements.
The word ‘must’ is used to indicate where something is a legal
requirement.
December 2018
Information in this guide has been revised up to the date of publication.
For more information, go to the Acas website at www.acas.org.uk
Legal information is provided for guidance only and should not be
regarded as an authoritative statement of the law, which can only be
made by reference to the particular circumstances which apply. It may,
therefore, be wise to seek legal advice.
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Contents
About this guide ............................................................................ 5
What are settlement agreements? ................................................. 5
Who can enter into settlement agreements? ................................. 6
When might settlement agreements be used? ............................... 6
How do you make a settlement offer? ......................................... 10
Template letters .......................................................................... 10
What should be covered in a settlement offer? ................................ 10
How do you discuss and negotiate settlement offers? ................. 11
The time you need ....................................................................... 12
The process that works best .......................................................... 12
The people involved ..................................................................... 13
The sensitivity of the issues being discussed ................................... 14
Payment arrangements ................................................................ 14
How to end the employment relationship ........................................ 15
The formal written agreement ..................................................... 16
Legal requirements involved in drawing up a settlement agreement ... 16
Confidentiality clauses in settlement agreements ............................. 18
The admissibility of settlement agreement negotiations in
employment tribunals and courts ................................................ 18
What does ‘without prejudice’ mean? ............................................. 19
What are the admissibility provisions of section 111A of the
Employment Rights Act 1996? ....................................................... 20
How does s.111A apply alongside the ‘without prejudice’ principle in
unfair dismissal cases? ................................................................. 28
How does s.111A apply in cases involving multiple types of claim?..... 29
Discrimination and victimisation and the use of settlement
agreements ................................................................................. 30
Settlement agreements and collective redundancies ................... 32
What if a settlement agreement is not reached? ......................... 33
What happens if a settlement agreement is not honoured? ......... 34
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Annex 1: Checklist for employers proposing a settlement
agreement ................................................................................... 35
Annex 2: Checklist for employees who have been offered a
settlement agreement ................................................................. 37
Annex 3: Optional template letter to initiate settlement
discussions (where there has been no previous performance
management or disciplinary action) ............................................ 39
Annex 4: Optional template letter to initiate settlement
discussions (where there has been previous or there is ongoing
performance management or disciplinary action) ....................... 41
Annex 5: Model settlement agreement ........................................ 43
Guidance on using the model agreement ........................................ 43
Model Settlement Agreement ........................................................ 51
Annex 6: An illustration of the admissibility of settlement
agreement negotiations in unfair dismissal cases ....................... 65
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About this guide
Employment relations concerns can arise in most workplaces – employers
may be unhappy with an employee’s performance or their behaviour
whilst employees may feel discontented about the way they are being
treated or the work they are being asked to do.
Problems in the workplace are usually best resolved in open
conversations, including, as appropriate, through the use of performance
management, informal and formal disciplinary or grievance procedures,
workplace mediation or Acas conciliation.
However, settlement agreements are also a tool that can be used to deal
with workplace problems. Most commonly they are used to help end an
employment relationship in a mutually acceptable way.
This guide, which has been considered and approved by the Acas Council,
is designed to help employers and employees understand what settlement
agreements are, what their effect is, when they might best be used and
how they can be negotiated.
Although settlement agreements can be proposed by employers or
employees they are usually proposed by employers and this guidance is
focused accordingly. Nevertheless, the guidance will also be helpful to
employees who have been offered a settlement agreement or where
employees are themselves considering proposing settlement. Employees
considering these options may wish to seek further advice. This is
available from a number of sources including the Acas Helpline, their
trade union, their local Citizen’s Advice bureau, or an employment lawyer.
This guide focuses, in part, on explaining the law relating to the use of
settlement agreement offers and discussions as evidence in unfair
dismissal claims before employment tribunals, as regulated by section
111A of the Employment Rights Act 1996. It also provides guidance on
settlement agreements more broadly.
The guide sets out good practice and has no formal status in employment
tribunal proceedings. It should therefore be used in conjunction with the
Acas statutory Code of Practice Settlement Agreements (under section
111A of the Employment Rights Act 1996). The Code is taken into account
by employment tribunals when considering relevant cases.
What are settlement agreements?
Settlement agreements, formerly known as compromise agreements, are
documents which set out the terms and conditions agreed by those
involved (the two parties) when they agree to settle a potential
employment tribunal claim or claims or other court proceedings.
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Who can enter into settlement agreements?
Normally it is an employer and employee (or former employee) who are
the contracting parties to a settlement agreement.
They can also be agreed between an employer and someone other than
an employee (or former employee) who may be able to bring a claim to
an employment tribunal – for instance, a worker who has a complaint
about holiday pay, or an unsuccessful job applicant who feels they were
discriminated against at a job interview.
An individual settlement agreement will be signed by two parties and
cannot be signed by groups of individuals.
Box 1: Key features of settlement agreements
• They are legally binding
• They can waive an individual’s rights to bring a claim covered by
the agreement – for example, the right to make a claim to an
employment tribunal or court
• The employee (or former employee) usually receives some form of
financial payment and will also often receive a reference as part of
the agreed terms
• They are entirely voluntary – they include terms and conditions that
are mutually agreed, and parties do not have to enter into them if they
do not wish to do so
• They are often reached through a process of discussion and
negotiation. The parties do not have to accept the terms initially
offered – there may be a process of negotiation during which both
sides make offers and counter offers
• Negotiations about settlement agreements are often confidential in the
sense that, if an agreement is not reached, the negotiations may not
be admissible as evidence in claims before an employment tribunal or
in other court proceedings.
When might settlement agreements be used?
Settlement agreements are normally used to bring an employment
relationship to an end in a mutually agreed way. They are often used in
situations where an employer and employee feel that their employment
relationship is no longer working and a ‘clean break’ is the best way
forward. In these situations both parties can agree the basis for bringing
the employment to an end.
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They can also be used to reach an agreed and final conclusion to a
workplace dispute or issue which does not result in an end to the
employment relationship.
For instance, a settlement agreement may be used to resolve a dispute
over holiday pay. Examples 1 and 2 illustrate how they might be used by
an employer and an employee.
Example 1: How a settlement agreement might be used
by an employer
John has been working for his employer as a sales representative for ten
years. The company has recently had to reduce the number of sales
representatives it employs and, as a result of discussions, John has
agreed to move from his sales role to an administrative role in head
office.
Despite ongoing attempts by his employer to support and encourage him
to adapt to his new job, John is struggling to perform his new duties to a
satisfactory level. John is unhappy in his new role and his difficulties are
beginning to impact on the performance of others in head office.
In discussions with his manager, John has let it be known that, whilst he
appreciates the efforts his employer is making to help him, he feels he
will never be able to adapt to his new job and he is becoming increasingly
demotivated. In view of this, and his previous good work as a sales
representative, the company decides to offer John a settlement
agreement.
After giving the matter due consideration, discussing terms and taking
independent advice, John decides to accept the offer. He leaves the
company with an agreed one-off payment and an agreed reference, which
he feels will put him in a good position to look for a new job as a sales
representative, and the company has the reassurance that John will not
raise an employment tribunal claim against it.
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Example 2: How a settlement agreement might be used
by an employee
Magdalena and Zoe are members of the IT team in a financial services
company. Each is highly motivated in their work and has expertise that is
valued by the company. However, they have never got along well with
one another on a personal level.
When their colleagues begin to mention that this ‘personality clash’ is
having an adverse effect on the performance of other members of the
team, their manager, Raman, tries various ways to improve relations
between them, but without any lasting success.
With all parties now feeling that the situation may never improve
significantly, and with everyone somewhat at a loss as to how to proceed,
Magdalena begins to consider whether a settlement agreement may
provide a way forward. She enjoys her work with the company, but she is
now prepared to consider that there may be advantages in reaching an
agreement to part ways with them if suitable terms can be agreed.
Magdalena therefore approaches Raman in confidence. She explains her
concerns and proposes that they explore the possibility of reaching a
settlement agreement.
Raman is reluctant to lose Magdalena as a valued employee but
recognises that the current situation is not working for either Magdalena
or Zoe nor the business itself. Raman can see that Magdalena’s proposal
may provide a way through the impasse and so, through a series of
meetings, they discuss the scope for a settlement agreement and are able
to reach mutually agreeable terms.
The company agrees to provide Magdalena with an agreed reference and
a financial payment, and Magdalena agrees to leave on a date that will
allow the company to conduct a recruitment process in good time to
replace her with someone who has comparable skills and expertise.
Settlement agreements can be offered at any stage of an employment
relationship. As Example 1 illustrates, there is no legal requirement to go
through a disciplinary process, or even start one, before offering a
settlement agreement.
Employers will, however, want to think carefully about when and how to
offer a settlement agreement. Not all disputes or problems in the
workplace lend themselves to resolution through a settlement agreement
and employers should be careful not to rely on them as an alternative to
good management. Settlement agreements are one ‘tool’ to use in
appropriate situations, but problems with employees are usually best
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resolved by talking with the employee and working with them
constructively to resolve the issue that is causing the difficulty.
In particular, where there has been no previous mention of a problem,
such as a disciplinary issue or a grievance, employers will want to
consider whether an offer of settlement could appear ‘out of the blue’,
and therefore how it might affect an individual’s reaction to the offer and
the ongoing relationship if an agreement is not reached.
Fairness, transparency and good workplace relations are promoted by
developing and using rules and procedures for handling performance
management and disciplinary and grievance situations. Settlement
agreements should not be used as a substitute for such good practice.
The Acas Code of Practice on Disciplinary and Grievance Procedures and
associated guidance, and the Acas guide on How to manage performance,
explain how employers can use both informal and formal procedures to
resolve problems at work.
Brief checklists designed to help employers and employees consider and
use settlement agreements are attached at Annexes 1 and 2.
Some advantages/disadvantages of using settlement
agreements
Advantages:
• Can provide a swift and dignified end to an employment relationship
that is not working
• Can avoid the time, cost and stress involved for both parties in a
tribunal claim
• Can provide compensation and often a reference for employees.
Disadvantages:
• The cost of paying an agreed financial sum to an employee
• The potential risk to the ongoing employment relationship with the
individual if settlement is not agreed
• The potential risk to employment relations in the wider workforce if
used inappropriately or as a substitute for good management
practices.
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How do you make a settlement offer?
Employers can open settlement discussions and make an offer either
orally or in writing. Speaking to the employee involved about the issues
and the proposal of settlement can be a helpful first step. Putting an offer
in writing can help prevent misunderstandings.
A written offer would usually outline the proposed terms of an agreement
– for example, what the proposed compensation might be. Any final
agreement must be put in writing.
However the offer is made, it is usually helpful if the employer gives the
employee a clear indication of why the offer is being made. For example,
is it due to concerns about the employee’s poor performance or
attendance? In explaining such reasons, it should be borne in mind that
settlement discussions do not form part of a disciplinary or performance
management process (see p33
).
Template letters
Employers may already have appropriate offer letters; however two
optional draft template letters, which can be used in some common
situations to open or confirm settlement discussions and to make offers,
are at Annexes 3 and 4.
The template letter in Annex 3 is for use where the settlement agreement
is being offered where no associated formal process has been undertaken.
The template in Annex 4 is designed to be used where the settlement
agreement is being offered in relation to an issue that has already been
the subject of an associated disciplinary or performance management
process.
Employers do not have to use these template letters if they do not wish to
do so. However, it is important that employers ensure that in any letter
used, the wording is appropriate to the particular situation. For instance is
the letter being used to initiate settlement discussions, or to confirm the
details of an offer made at a previous discussion?
The template letters are designed to be a convenient resource for
employers, but employers should also follow the principles of good
practice and must follow the legal requirements set out in this guidance
when offering and discussing settlement agreements.
What should be covered in a settlement offer?
What the offer consists of will be for each employer to determine in the
light of the particular circumstances, but offers often include a proposed
financial payment to the employee and often also a reference.
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In offering and negotiating a payment amount, employers will wish to
consider a number of factors, some of which are set out in Box 2 below.
An employer is not obliged to provide a reference but, where this is being
considered, the parties will need to consider an agreeable form and
content for the reference. In some cases a full and comprehensive
reference can be agreed. In other cases a short statement confirming that
the individual was employed, the dates of the employment and the
employee’s job title may be preferred.
In all cases, the employer should consider their responsibility towards the
employee and the recipient of the reference and the potential liability for
any misleading information provided. A reference should provide a true
and accurate summary of the employment and an employer should only
give information that they believe to be correct.
Where the terms of a reference have been agreed, an employer who is
subsequently asked for an informal, oral reference regarding that
employee should ensure that what they say is consistent with what has
been agreed in the written reference.
Box 2: How to decide how much money you might offer?
You might bear in mind:
• what the employment contract says about issues such as
remuneration, notice period and untaken annual leave
• length of employment
• the length of time it may take to resolve the problem if a settlement is
not reached
• how difficult it would be to fill the post
• how long it might take the employee to find another job
• the reasons for offering settlement
• the possible liabilities and costs involved in dealing with any potential
tribunal or court claim if settlement is not reached.
How do you discuss and negotiate settlement
offers?
When approaching settlement discussions and negotiations, it is best to
consider the following factors:
• the time you need
• the process that works best
• the people involved
• the sensitivity of the issues being discussed
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• the payment arrangements
• how to end the employment relationship.
The time you need
The employee needs to be given reasonable time to consider an offer of a
settlement agreement. What is reasonable will depend on the
circumstances of each case, including what both parties might agree is a
reasonable time.
As a general rule, a minimum period of 10 calendar days should be
allowed to consider the proposed formal written terms of a
settlement agreement and to receive independent advice, unless
the parties agree otherwise.
In some circumstances, not allowing a reasonable time might mean that
the settlement discussions can be referred to as evidence in a subsequent
unfair dismissal claim before an employment tribunal.
Allowing reasonable time to consider an offer
The period of ten calendar days is a specific requirement of the Acas Code
of Practice on Settlement Agreements (under section 111A of the
Employment Rights Act 1996) (see paragraphs 12 and 18 of the Code),
the failure to adhere to which may affect the admissibility of pre-
termination settlement negotiations as evidence in unfair dismissal cases
before an employment tribunal.
See further pp20-27 of this guide.
It can be helpful to agree a timetable for discussions which allows parties
time to take advice and to consider offers, whilst also avoiding any
unnecessary delays.
The process that works best
The party proposing a settlement (normally the employer) should be clear
about the reasons for making the offer and be prepared to answer likely
questions that may follow in discussion.
A meeting with the employee, or a series of meetings, provides a good
opportunity to clarify exactly what is being offered and to discuss any
questions. A meeting also provides the employee with an opportunity to
make a counter offer if they so wish.
Ideally meetings should be held on a day and at a time that is convenient
to both parties. The number of meetings needed and the time they take
may depend on the nature of the problems being discussed.
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At the start of any such meeting it is good practice to make sure that
those involved are aware that any discussions about the proposed
settlement agreement are expected to be inadmissible in relevant legal
proceedings (see pp18-29 for more guidance on the inadmissibility of
settlement negotiations in legal proceedings). It may be helpful for this
purpose if the party initiating settlement discussions draws the other
party’s attention to the Acas Code of Practice on Settlement Agreements
and this guidance booklet before the meeting or at the outset of the
discussions.
It should also be made clear that the discussions at the meeting, and any
later discussions about settlement which may follow, will have no bearing
on any disciplinary or performance management procedure in the event
that an agreement on settlement is not reached.
The discussion process is voluntary and either party is free to decide that
they do not wish to enter into discussions, or that they no longer wish to
continue the process at any time. Parties are also free to turn down an
offer of a settlement agreement. However, parties must bear in mind the
importance of allowing a reasonable period of time to consider an offer.
The people involved
A settlement agreement is made between two parties, the employer and
the employee, but the employee may want to involve someone else in the
discussions. Whilst not a legal requirement, employers should allow
employees to be accompanied at the meeting by a work colleague, trade
union official or trade union representative. Allowing the individual to be
accompanied is good practice and may help to progress settlement
discussions.
Where an employer does allow an employee to be accompanied at a
settlement discussion meeting, a companion who is a work colleague
should be given paid time-off to attend the meeting. At the meeting, it is
good practice to allow the companion to play a full part, including
expressing views on behalf of the employee and responding to questions
or proposals put by the employer. The companion should also be allowed
to confer with the employee during the meeting, privately if necessary.
There is no statutory right to accompaniment at meetings held to discuss
settlement agreements and, in view of this, companions should be aware
that there is no statutory protection against ‘detriment’ for those
undertaking this role, as there is for companions who attend disciplinary
or grievance hearings. However, if an employer dismisses an employee
for accompanying a colleague to a settlement discussion, it could lead to
a claim of unfair dismissal. Also, any detriment to a trade union official or
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trade union representative for undertaking activities in their role as a
companion is unlawful.
Definition check: Detriment
The word ‘detriment’ refers to a disadvantage or less favourable
treatment received as a consequence of having exercised or attempting to
exercise certain statutory rights.
Employers should be aware that, in certain circumstances, refusing to
allow an employee to be accompanied might amount to unlawful
discrimination. For example, it might be a reasonable adjustment to allow
a disabled employee to be accompanied because of the nature of their
disability. Refusing to do so may therefore constitute unlawful
discrimination in such circumstances.
Parties may want offers of a settlement agreement and discussions about
them to be confidential. If so, all those involved at meetings, including
any companions, should respect the confidential nature of what is said.
The sensitivity of the issues being discussed
The quality of the interaction between the parties during settlement
discussions is often a key to reaching agreement. If the settlement
discussions are conducted in a sensitive manner, including listening to
concerns and providing informative answers to questions, there is a
greater chance of reaching a mutually acceptable outcome.
Payment arrangements
Details of payment arrangements and their timing should be included in
the agreement. It is good practice to agree that any payments should be
made as soon as practicable after the agreement has been reached.
Payments agreed under a settlement agreement may be made up of
various elements. For example, a sum to compensate the employee for
agreeing not to pursue an employment tribunal claim, plus a payment for
outstanding holiday entitlement at the end of the employment. These
elements may be treated differently for income tax and National
Insurance (NI) purposes.
In general, any element of an agreed payment that corresponds to the
pay and benefits that the employee usually receives, or would have
received, in the course of their employment will be subject to the normal
rules on income tax and NI. This includes any element corresponding to
wages/salary, bonus, commission, holiday pay, and so on.
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Any element of a settlement payment agreed as a compensation payment
can usually be made free from income tax and National Insurance (NI) up
to a certain threshold, currently £30,000.
From 6 April 2018, changes to tax rules mean that this threshold does not
apply to payments in lieu of notice (PILON), whether or not such
payments are provided for under the terms of the employment contract.
(For more information on this, go to the HMRC guidance at
www.gov.uk/hmrc-internal-manuals/employment-income-
manual/eim13874.)
The taxation of other elements of payments made under a settlement
agreement can be a complex matter. For example, if the reason for the
employment coming to an end is redundancy, a statutory redundancy
payment will not be subject to income tax and NI, but a contractually
enhanced redundancy payment might be.
It is therefore advisable for a settlement agreement to:
• clearly specify any constituent elements that make up the overall
settlement payment;
• state whether any particular element is to be paid either with or
without deductions for tax and NI;
• and, if deductions are to be made, wherever possible state the actual
sums that are to be paid and to be deducted.
Guidance on how payments can be specified clearly in a settlement
agreement is given in Annex 5. However, parties in any doubt should
consult a tax adviser or HMRC.
How to end the employment relationship
Where the settlement agreement includes an agreement to end the
employment relationship, the employment can be ended either with the
required period of notice, or as agreed between the parties in the terms of
the settlement agreement.
Entering into a settlement agreement which ends the employment
relationship does not necessarily mean that the employee has been or will
be ‘dismissed’. The parties may be deemed to have mutually consented to
bring the contract of employment to an end for a reason other than
dismissal – for example, that the employee has simply agreed to leave
voluntarily on agreed terms.
There is no need for a settlement agreement to state why the
employment relationship is ending. However, if the parties wish to do so,
then the settlement agreement may state that the employee is being, or
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will be, dismissed, if this reflects the underlying situation that has led to
the settlement agreement.
Parties should bear in mind during settlement discussions that the specific
circumstances and underlying reason for the ending of an employment
contract can have an impact on, for example, entitlement to Jobseekers
Allowance, Universal Credit and payments under some insurance policies.
Parties in any doubt should seek advice, for example from Jobcentre Plus
or their insurance policy provider.
The formal written agreement
Following any discussions and negotiations, if the parties wish to conclude
a settlement agreement they will need to draw up a formal written
agreement.
Each settlement agreement will, of necessity, reflect the particular
circumstances of its individual case. However, to help parties draw up
agreements quickly and easily, and to provide a basis on which to work, a
model agreement is attached at Annex 5 together with guidance on
completing the various clauses in the agreement.
The model agreement should be adapted to meet different circumstances.
Legal requirements involved in drawing up a settlement
agreement
For a settlement agreement that waives an individual’s right to bring legal
proceedings to be valid, certain legal conditions must be met. As Box 3
shows, the employee must receive independent advice from a relevant
adviser. There may be a cost involved in obtaining such advice and
employers may wish to offer to pay any such fee, or a contribution
towards it, in the interests of ensuring that the employee gets the
necessary advice.
It should be remembered that settlement agreements are legal
documents and employers may also wish to seek legal advice when
drawing them up.
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Box 3: What are the legal requirements involved in
drawing up a settlement agreement?
For a settlement agreement to be valid in waiving an individual’s right to
bring a complaint or complaints before an employment tribunal or other
court, all of the following conditions must be met:
A. The agreement must be in writing
B. The agreement must relate to a particular complaint or proceedings
C. The employee must have received advice from a relevant independent
adviser on the terms and effect of the proposed agreement and its
effect on the employee’s ability to pursue that complaint or
proceedings before an employment tribunal or other court
D. The independent adviser must have a current contract of insurance or
professional indemnity insurance covering the risk of a claim by the
employee in respect of loss arising from that advice
E. The agreement must identify the adviser
F. The agreement must state that the statutory provisions which set out
the above conditions regulating the validity of the settlement
agreement have been satisfied.
What can the agreement settle?
Simply saying that the agreement is in ‘full and final settlement of all
claims’ will not be sufficient to contract out of employment tribunal and
court claims. To be legally binding for these purposes, a settlement
agreement has to specifically state the claims that it is intended to cover.
Who can be an independent adviser?
An independent adviser can be:
• a qualified lawyer
• a certified and authorised officer, official, employee or member of an
independent trade union; or
• a certified and authorised advice centre worker.
The adviser must not be employed by, acting for, or connected with the
employer.
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Confidentiality clauses in settlement agreements
Settlement agreements often contain clauses relating to confidentiality
whereby the parties agree to keep the agreement itself confidential and
not disclose its details to third parties (usually with limited exceptions
such as close family members and professional advisers, or an exception
that makes it clear that the parties can disclose details where they are
required to do so by law).
Settlement agreements will also sometimes specify that an employee will
continue to be bound by confidentiality clauses that are already included
in the terms and conditions of their employment contract, unless the
parties agree otherwise.
All such confidentiality clauses are voluntary and are a matter for the
parties to agree during the course of the settlement discussions.
Confidentiality clauses should only be used when necessary and should
not be included in settlement agreements as a matter of course.
It is important to note that confidentiality clauses cannot and should not
seek to prevent an individual from being able to make a protected
disclosure of matters of public interest under ‘whistleblowing’ legislation
(the Public Interest Disclosure Act 1998 (PIDA)). Any provision which
attempts to do so will be legally unenforceable.
If a confidentiality clause is to be used, it should include wording to make
it clear that the individual’s right to make a protected disclosure of
matters in the public interest is not affected. The wording should not seek
to discourage the individual from raising concerns, for example about
wrongdoing, poor practice or unlawful conduct in the employer’s
organisation.
Clause 8 in the model settlement agreement in this guide provides some
suggested wording for this purpose.
The admissibility of settlement agreement
negotiations in employment tribunals and courts
It is an important principle of settlement agreements that the parties
should be free to consider and discuss them in the knowledge that, if the
parties do not reach an agreement and a related claim is then brought to
an employment tribunal or court, the discussions cannot be used as
evidence in those legal proceedings.
The rules relating to the admissibility of settlement negotiations as
evidence in legal proceedings are highly technical. The overview in the
following paragraphs is intended to explain the principles involved as
simply and accurately as possible for a general audience.
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The admissibility of settlement offers and discussions in legal proceedings
is now regulated by two provisions:
• The ‘without prejudice’ principle, and
• The admissibility provisions on settlement agreements set out in
section 111A of the Employment Rights Act 1996 (an amendment to
the 1996 Act which was introduced in 2013).
What does ‘without prejudice’ mean?
‘Without prejudice’ is a common law principle which prevents statements,
whether written or oral, which are made in a genuine attempt to settle an
‘existing dispute’, from being put before an employment tribunal or other
court as evidence in legal proceedings between those parties about that
dispute.
This principle can apply to any type of employment tribunal or court claim
– for instance unfair dismissal claims, breach of contract claims, unlawful
discrimination claims, wages claims, and so on.
In order for settlement discussions and agreements to be protected under
the ‘without prejudice’ principle, there must be:
• an ‘existing dispute’ between the parties and a genuine attempt to
settle that dispute, and
• no ‘unambiguous impropriety’ in the conduct of the parties during
the settlement discussions.
In situations where there is no ‘existing dispute’ between the parties at
the time that settlement is proposed and discussed, or where some
‘unambiguous impropriety’ takes place in relation to the settlement offer
or discussions, then the ‘without prejudice’ principle will not apply.
Definition check: ‘Unambiguous impropriety’
This might include blackmail, fraud, physical violence or unlawful
discrimination. It might also cover the use of threats or intimidation when
making an offer. What constitutes ‘unambiguous impropriety’ is ultimately
for an employment tribunal or court to decide on the facts and
circumstances of each case.
The simple fact of making an offer with a view to settling an existing
dispute does not of itself amount to ‘unambiguous impropriety’ because
one party would have preferred the other to take a different approach to
trying to resolve their dispute.
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‘Existing dispute’: this term is difficult to define precisely. It has a
technical legal meaning which can cover a variety of situations, but it
does not cover every disagreement between two parties and determining
exactly what constitutes an ‘existing dispute’ for the purposes of the
‘without prejudice’ principle can be problematic. For example, the fact
that the employee has raised a grievance will not necessarily constitute
an ‘existing dispute’.
In general, for there to be an ‘existing dispute’ it is key that one of the
parties has brought, or might reasonably have contemplated bringing,
legal proceedings against the other party at the time that the settlement
offer and discussions took place.
For example, there will be an ‘existing dispute’ in a situation where the
employment relationship has already ended and the employee has
brought an employment tribunal claim of unfair dismissal against the
employer. There can also be an ‘existing dispute’ in some other situations
where the employment is ongoing and a settlement agreement is offered
before any claim has been brought to an employment tribunal or court –
for example, where an employee is considering bringing a claim that their
employer has breached their contract of employment.
However, where an employer offers an employee a settlement agreement
to end the employment relationship ‘out of the blue’, ie where that
employee was not previously aware of any issue which placed the
continuation of their employment in question, then it is unlikely that there
would be have been an ‘existing dispute’ between the parties when that
offer was made. In this situation, the offer could not therefore be made
and discussed on a ‘without prejudice’ basis, although it might be
‘protected’ under section 111A of the Employment Rights Act 1996 (see
below).
Section 111A provides more certainty as to when settlement offers and
discussions may not be used as evidence, although only in unfair
dismissal claims before employment tribunals, as it does not require there
to be an ‘existing dispute’ between the parties.
What are the admissibility provisions of section 111A of
the Employment Rights Act 1996?
These provisions, sometimes simply referred to as ‘s.111A’, provide a
similar protection to the ‘without prejudice’ principle but apply only to:
• settlement offers and discussions that relate to the ending of an
employment relationship (pre-termination negotiations); and
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21
• unfair dismissal claims (including constructive unfair dismissal
claims) brought to an employment tribunal.
Definition check: Constructive unfair dismissal
If an employer’s conduct involves a significant and fundamental breach
going to the root of an employee’s contract of employment, that
employee can in some circumstances resign and claim that they have
effectively been dismissed by their employer’s conduct. Such an employee
may then bring a claim of constructive unfair dismissal to an employment
tribunal.
Examples of a serious breach of contract that might amount to
constructive unfair dismissal might be a failure to provide safe working
conditions, failure to pay wages, or a unilateral and significant alteration
of an employee’s job content or status.
(However, any employee contemplating resigning in such circumstances,
with a view to claiming constructive unfair dismissal, should get advice
before doing so.)
The provisions of s.111A mean that pre-termination settlement
negotiations cannot normally be referred to as evidence in an unfair
dismissal claim, even where there was no ‘existing dispute’ between
the parties at the time that the settlement offer and discussions took
place.
In particular, the provisions of s.111A mean that an employee will
normally not be able to refer to the fact that their employer has offered a
settlement agreement to end their employment contract as evidence in
support of a constructive unfair dismissal claim at an employment
tribunal.
It is important to note, however, that s.111A does not apply to other
types of claim, such as wrongful dismissal or breach of contract claims,
even when these are brought together with an unfair dismissal claim or
constructive unfair dismissal claim (See further p29.)
Example 3: Offering a settlement agreement under the
section 111A provisions
Scenario
David has worked in George’s shop for several years. After deciding to
start studying at college last year, David began to regularly turn up late
for his shifts. George informally discussed David’s timekeeping with him
several times and was able to take account of David’s study commitments
Settlement agreements
22
by re-arranging his shift pattern. However, when David continued to
regularly turn up late, George started a disciplinary process which
resulted in David receiving a first written warning.
Since then, David’s timekeeping has still not improved. In further informal
discussions, George has explained to David that if his timekeeping does
not become more reliable, then further disciplinary action, including a
final written warning and ultimately dismissal, may result. David
continues to promise that he will improve, but at the same time has
asked George to understand that his college studies must come first.
George is sympathetic to David’s college commitments, but his
discussions with David so far give him no optimism that David will come
to appreciate the impact that his poor timekeeping is having on the
business. He decides to invite David to a meeting to propose a settlement
agreement. He tells David that he values him as a good employee but
suggests that he may wish to consider whether the situation is likely to
improve sufficiently. He proposes that, as an alternative to the possibility
of further disciplinary action, an agreed reference and a financial
settlement may be an attractive option for David. David protests that
George is ‘jumping to conclusions’ and treating him unfairly and he
refuses the offer.
Over the following weeks, with David’s conduct still showing no sign of
improvement, George follows the company disciplinary procedure which
leads to David receiving a final written warning. The situation continues
as before, however, and further disciplinary action at a later date results
in David being dismissed.
Comments
• When considering whether to offer David a settlement agreement to
end his employment, George does not have to worry about whether or
not there is technically an ‘existing dispute’ between them because
s.111A is applicable regardless of whether or not there is an ‘existing
dispute’.
• If David brings a claim of unfair dismissal to an employment tribunal
then s.111A should apply here, so David should not be able to refer to
George’s settlement offer and settlement discussions as evidence at
the tribunal hearing.
Circumstances in which s.111A will not apply in unfair dismissal
cases
There are some circumstances in which the s.111A provisions will not
apply to prevent pre-termination settlement negotiations being used as
evidence in unfair dismissal cases. The provisions of s.111A do not apply
to ‘automatically unfair dismissal’ claims – for example, claims that
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23
an employee was dismissed for asserting a statutory right, carrying out
trade union activities, or ‘whistleblowing’.
Definition check: ‘Automatically unfair dismissal’
Some dismissals are classed as ‘automatically unfair’ regardless of any
question as to whether the dismissal was ‘reasonable’. These include
where an employee is dismissed for exercising specific rights to do with:
• pregnancy, including all reasons relating to maternity
• family, including parental leave, paternity leave (birth and adoption),
adoption leave or time off for dependants
• acting as an employee representative
• acting as a trade union representative
• joining or not joining a trade union
• being a part-time or fixed-term employee
• health and safety
• protection against unlawful discrimination (on the grounds of age,
disability, gender reassignment, marriage and civil partnership,
pregnancy and maternity, race, religion or belief, sex, and sexual
orientation)
• pay and working hours, including the Working Time Regulations,
annual leave and the National Minimum Wage
• public interest disclosure (whistleblowing)
• asserting other statutory rights.
The provisions of s.111A may also not apply in any type of unfair
dismissal claim if there has been some ‘improper behaviour’ in
anything said or done in relation to the settlement negotiations.
Where an employment tribunal finds that there has been some ‘improper
behaviour’, the tribunal will then have discretion to decide whether, in the
circumstances, it is just to admit evidence of those settlement
negotiations.
What is ‘improper behaviour’?
What constitutes ‘improper behaviour’ for the purposes of s.111A is
ultimately a matter for an employment tribunal to decide on the facts and
circumstances of each case. It includes, but is not limited to, behaviour
that would be regarded as ‘unambiguous impropriety’ under the ‘without
prejudice’ principle (see pp18–20).
The following list provides some examples of ‘improper behaviour’. The
list is not exhaustive:
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24
• All forms of harassment, bullying and intimidation, including through
the use of offensive words or aggressive behaviour;
• Physical assault or the threat of physical assault and other criminal
behaviour;
• All forms of victimisation;
• Discrimination because of age, sex, race, disability, sexual orientation,
religion or belief, gender reassignment, pregnancy and maternity, and
marriage or civil partnership;
• Putting undue pressure on a party. For instance:
o Not giving a reasonable period of time to consider an offer. What
constitutes a reasonable period of time will depend on the
circumstances of the case. As a general rule, a minimum period
of 10 calendar days should be allowed to consider the proposed
formal written terms of a settlement agreement and to receive
independent advice, unless the parties agree otherwise;
o An employer saying before any form of disciplinary process has
begun that if a settlement proposal is rejected then the
employee will be dismissed;
o An employee threatening to undermine an organisation’s public
reputation if the organisation does not sign the agreement,
unless the provisions of the Public Interest Disclosure Act 1998
apply.
Definition check: Bullying and harassment
‘Bullying and harassment’ means any unwanted behaviour that makes
someone feel intimidated, degraded, humiliated or offended. It might be
obvious or it might be insidious. It may be persistent or an isolated
incident. It can occur in written communications, by phone or through
email, not just face to face.
Examples of bullying/harassing behaviour could include:
• spreading malicious rumours, or insulting someone
• exclusion or victimisation
• unfair treatment
• deliberately undermining a competent worker by constant criticism.
‘Harassment’ more specifically is unwanted conduct which is related to
one of the following: age, disability, gender reassignment, marriage and
civil partnership, pregnancy and maternity, race, religion or belief, sex,
and sexual orientation. It is unlawful under the Equality Act 2010.
Settlement agreements
25
Definition check: Victimisation
‘Victimisation’ has a special, technical, meaning which is not always the
same as its everyday meaning of ‘treating someone unfairly’.
In employment law, ‘victimisation’ means treating someone less
favourably than others because that person has exercised, or intends to
exercise, specific rights – such as maternity rights, or the right to holiday
pay or annual leave.
For example, the Equality Act 2010 makes it unlawful to treat someone
less favourably than would otherwise have been the case because he or
she has exercised, or intends to exercise, rights under that Act.
So, for instance, treating an employee less favourably because they have
raised a grievance about discriminatory treatment on the basis of race or
disability, or have provided information to support a colleague’s complaint
about unlawful discrimination, would be victimisation.
It would also be victimisation to subject an employee or worker to any
‘detriment’ in the sense defined above on pp13-14.
Example 4: ‘Improper behaviour’
Scenario
Anna worked as a helpline adviser in a call centre for three years. When
the company upgraded its call handling software six months ago, her
employer provided training for all the helpline advisers. Anna found it
difficult to adapt to the new technology and her performance began to fall
behind that of her colleagues. However, her manager, Adebayo,
reassured Anna that her performance was still satisfactory, commenting
that it would probably just take some time for Anna to get used to the
new system.
When Adebayo left the organisation shortly afterwards, Anna’s new
manager Mark took a very different approach. At their first team meeting,
Mark made it known that he had “no time for slackers” and that he
expected all his staff to work to high standards at all times.
A few weeks later, Mark called Anna to his office for a meeting and
explained that he had been reviewing the performance records of all his
staff. He stated angrily that Anna was “the worst performer in the whole
section” and told her, “You’re not going to last in here. I don’t see that
you’re going to improve and I won’t be as patient as my predecessor.
You’ll end up being dismissed for poor performance; it’s just a matter of
Settlement agreements
26
time.” Anna felt intimidated by Mark’s aggressive behaviour and was
shocked when Mark then offered her a settlement agreement to terminate
her employment, commenting that Anna could “take it or leave it, it’s up
to you. But this is a generous offer and you should think about it carefully
– it won’t be on the table tomorrow.”
When Anna refused to consider the offer, Mark commenced a disciplinary
process for poor performance which led to Anna being dismissed. Anna is
convinced she has been treated unfairly and brings an unfair dismissal
claim to an employment tribunal. She wishes to refer to the comments
Mark made when he offered the settlement agreement as evidence to
support her claim.
Comments
• S.111A should not apply here as Mark’s behaviour at the meeting may
be regarded as ‘improper behaviour’ in three respects: firstly, he acts
in an aggressive and intimidating manner towards Anna; secondly, he
provides only a very short time for Anna to consider the offer; and,
thirdly, he states that Anna will end up being dismissed even though
there has not yet been any disciplinary procedure.
• It is also unlikely that there was an ‘existing dispute’ when the
settlement offer was made, so the offer and discussion are unlikely to
be ‘protected’ by the ‘without prejudice’ principle.
• It is therefore likely that Anna will be able to refer to Mark’s comments
as evidence at the employment tribunal hearing.
The test of ‘improper behaviour’ is not intended to interfere with existing
and acceptable negotiating practices in relation to settlement agreements.
For example, it is common practice to make offers of financial payment
that include a reasonable time-limit for responses.
However, employers should consider whether their presentation of an
offer could be perceived by an employment tribunal as ‘improper
behaviour’. For instance, adopting a negotiating tactic that the amount
offered reduces progressively while the employee is considering the offer
could be considered as applying undue pressure on the individual to rush
a decision, and therefore constitute ‘improper behaviour’.
What constitutes undue pressure will, however, depend on the particular
circumstances of each case. For example, should an employer’s financial
position, or other factors outside of their control, suddenly change
significantly, they may be able to withdraw or amend a financial offer
within the period that the employee has been given to consider that offer,
without that constituting undue pressure.
Employment tribunals have discretion to determine whether or not there
has been ‘improper behaviour’ in an individual case, and to determine
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27
whether to admit evidence of the settlement discussions where they find
that there has been ‘improper behaviour’. The following list provides some
examples of what, depending on circumstances, usually would not be
considered as ‘improper behaviour’:
• Setting out in a neutral manner the reasons that have led to the
proposed settlement agreement;
• Factually stating the likely alternatives if an agreement is not reached,
including the possibility of disciplinary action which may lead to
dismissal if relevant;
• Factually stating that if an employee refuses a settlement agreement
and any subsequent disciplinary action results in dismissal then the
employee may not be able to leave on the same terms as set out in
the proposed settlement agreement;
• Not using the template letters or model agreement set out in the
Annexes to this guide;
• Not agreeing to provide a reference;
• Not paying for the employee’s independent advice;
• Encouraging an employee, in a non-threatening way, to reconsider a
refusal of a proposal.
It is important to bear in mind that the fact that there has been some
‘improper behaviour’ does not necessarily mean that an employer will lose
a subsequent unfair dismissal claim. Equally, the fact that an employer
has not engaged in some ‘improper behaviour’ does not necessarily mean
that they will win a subsequent unfair dismissal claim brought against
them.
Example 5: Behaviour that is not ‘improper’
Scenario
Youssef is the general manager of a hotel. He receives a formal grievance
raised by Julie, a member of the hotel’s bar staff, about bullying
behaviour by Gary, the bar manager. Youssef is concerned that history
may be repeating itself, as six months ago Gary was issued with a final
written warning after similar accusations from Chang, another member of
the bar team, were investigated.
Youssef is aware that the investigation process in that previous instance
caused distress among the entire bar team. There was also some
evidence that Gary’s bullying behaviour became more intimidating during
the process and, despite his grievance being upheld, Chang left his job
shortly afterwards, citing an inability to continue working with Gary.
Settlement agreements
28
Youssef is anxious to avoid a repeat of that situation if possible and he
decides to speak to Gary to see if he might be open to reaching a
settlement agreement to leave on agreed terms.
He invites Gary to a meeting and explains that he will next be arranging
for a full and fair investigation of the allegations made against him, which
will be carried out in line with the hotel’s grievance procedure. He
explains that no conclusions have yet been reached, but that if the
grievance is upheld then disciplinary action may follow, which may lead to
Gary’s dismissal. Youssef remarks that the process is likely to be stressful
and time-consuming for everyone and suggests, as an alternative, that
Gary might wish to reflect on his position and on whether an agreement
to part ways on mutually agreed terms might be an option he would
consider. Gary reacts angrily to this suggestion and refuses to discuss
settlement any further.
A thorough investigation then follows which provides firm evidence
suggesting that Gary has been acting in a bullying manner towards Julie.
A disciplinary hearing is next arranged which results in Gary being
dismissed. Gary brings a claim of unfair dismissal to an employment
tribunal. He wishes to refer to the settlement discussion with Youssef as
evidence that Youssef had plans to get rid of him all along and that the
investigation and disciplinary hearing were not fair.
Comments
• Youssef’s conduct during the settlement discussion should not be
regarded as ‘improper behaviour’. He explained to Gary that there was
a possibility of disciplinary action, including dismissal, but made it clear
that a fair and proper process would be followed before any such
decision was taken.
• S.111A should therefore apply here so that Gary should not be able to
refer to the settlement discussion as evidence at the unfair dismissal
hearing.
How does s.111A apply alongside the ‘without prejudice’
principle in unfair dismissal cases?
In unfair dismissal cases, settlement discussions may potentially be
inadmissible as evidence in an employment tribunal hearing under the
provisions of both s.111A and the ‘without prejudice’ principle.
Annex 6 provides a simplified diagrammatic illustration of how the
provisions of s.111A work alongside the ‘without prejudice’ principle in
unfair dismissal cases.
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29
In situations where there was no existing dispute between the parties
at the time the settlement agreement was offered and discussed, the
‘without prejudice’ principle cannot apply. However, s.111A can apply. In
these circumstances, pre-termination settlement negotiations will not be
admissible in an unfair dismissal hearing so long as there has been no
‘improper behaviour’.
Where there was an existing dispute between the parties at the time
the settlement agreement was offered and discussed, then the offer and
discussions may be covered by both the ‘without prejudice’ principle and
s.111A. The ‘without prejudice’ principle will apply unless there has been
some ‘unambiguous impropriety’. As this test is narrower than that of
‘improper behaviour’, then this effectively means that settlement
negotiations will not be admissible here unless there has been some
‘unambiguous impropriety’.
How does s.111A apply in cases involving multiple types
of claim?
The provisions of s.111A do not apply to employment tribunal claims
other than unfair dismissal – for example, claims made about
discrimination, wrongful dismissal or unlawful deduction of wages. The
provisions of s.111A are not extended to such claims even where those
claims are brought together with an associated unfair dismissal claim.
This means that in cases involving a claim of unfair dismissal together
with some other claim or claims, settlement discussions may be
inadmissible under s.111A in relation to the unfair dismissal part of the
claim but admissible in relation to the other parts of the claim. It is worth
bearing in mind, however, that settlement discussions for all parts of the
claim may be inadmissible if the ‘without prejudice’ principle applies.
Definition check: Wrongful dismissal
Wrongful dismissal is the name given to the dismissal of an employee in
circumstances which amount to a breach of their employment contract.
Wrongful dismissal claims occur most commonly where an employer
dismisses an employee without notice, or with insufficient notice, under
his or her contract of employment, and without paying adequate
compensation in lieu in notice.
The relevant considerations for a court or tribunal hearing a claim of
wrongful dismissal will be the relevant contractual obligations of the
employer (not the fairness of the dismissal itself).
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30
Discrimination and victimisation and the use of
settlement agreements
The occurrence of unlawful discrimination against an employee in relation
to the protected characteristics under the Equality Act 2010 – age,
disability, gender reassignment, marriage and civil partnership, pregnancy
and maternity, race, religion or belief, sex, and sexual orientation – or the
occurrence of unlawful victimisation (see p25), may constitute ‘improper
behaviour’ or ‘unambiguous impropriety’ in the context of settlement
discussions.
This means that discussions in which discrimination or victimisation
occurs may be admissible as evidence in unfair dismissal cases or other
cases that may be brought to an employment tribunal or court.
Moreover, employers should be aware that, in certain circumstances, the
reason for a settlement offer may itself constitute the basis for a claim of
unlawful discrimination or victimisation to an employment tribunal.
Examples of such discriminatory reasons may include:
• offering a settlement agreement to an employee because she informs
her employer that she is pregnant
• offering a settlement agreement to an older employee who has
reached a certain age in an attempt to encourage him or her to retire.
If either of these employees brought a claim of unlawful discrimination to
an employment tribunal then s.111A would not apply, since s.111A only
applies to unfair dismissal claims.
The ‘without prejudice’ principle may also not apply in such a
discrimination claim if there was no ‘existing dispute’ about discrimination
at the time that the settlement agreement was offered, and also because
discrimination may, in any event, constitute ‘unambiguous impropriety’.
Example 6: Unlawful discrimination in offering a
settlement agreement
Scenario
Sophie has worked on the production line in a shoe factory for seven
years. She has begun to develop arthritis in her hip which has affected
her mobility. Worried that this will begin to affect her performance at
work, Sophie discusses this with her GP who writes a fit note to her
manager recommending that Sophie’s workplace environment is adapted
to allow her to sit periodically and avoid standing for long periods of time.
Settlement agreements
31
A few days later, Sophie’s manager, Eddy, asks her to come up to his
office. Eddy refers to the GP’s note and then comments, “I empathise with
your situation Sophie, but you know you can’t carry on working here now
that you’ve got a bad hip. It’s just not going to work.” He then tells
Sophie that he is prepared to offer her a settlement agreement to
terminate her employment, which will include an agreed reference and a
financial offer that reflects her seven years’ service with the company.
When Sophie refuses the offer, Eddy then commences a performance
improvement process followed by a disciplinary process which leads to
Sophie being dismissed.
Sophie believes the performance process was a sham and that she has
also been discriminated against on the basis of her having arthritis. She
brings a claim of unfair dismissal together with a claim of disability
discrimination to an employment tribunal and wishes to use Eddy’s
comments during the settlement agreement meeting as evidence in both
these claims.
Comments
• Eddy’s comments during the settlement discussion may amount to
unlawful disability discrimination and may therefore be regarded as
‘improper behaviour’ or ‘unambiguous impropriety’. Therefore, the
settlement discussion may be admissible as evidence in the tribunal
hearing for Sophie’s unfair dismissal claim.
• Eddy’s comments also form the basis of Sophie’s further disability
discrimination claim. S.111A does not apply to discrimination claims.
Also, there was no ‘existing dispute’ about disability discrimination
between Sophie and her employer at the time that Eddy offered the
settlement agreement, so the ‘without prejudice’ principle will not
apply either. Therefore, Eddy’s comments are likely to be admissible as
evidence in the tribunal hearing for the disability discrimination claim.
Employers should always take care to ensure that the way in which
settlement discussions are conducted takes into account the particular
circumstances of the individual employee. Adopting a ‘one size fits all’
approach to the process could lead to an employer inadvertently
discriminating against employees with some protected characteristics.
For example, while the Acas Code of Practice on Settlement Agreements
(paragraph 12) specifies that there should be a minimum period of 10
calendar days in which to consider the proposed formal written terms of a
settlement agreement and to receive independent advice (see pp11-12 of
this guide), this time period may need to be reasonably adjusted in
particular circumstances. For instance, a disabled employee might need to
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32
be given a longer period because of the nature of their disability (eg they
may need to arrange a palantypist or British Sign language interpreter for
a meeting with an independent adviser).
Care should also be taken to ensure that the arrangements as to the time
and place for a meeting to discuss settlement do not discriminate against
an employee. For example, employers should not arrange a meeting:
• At a place that may be difficult to access for a disabled employee;
• At a time that may be difficult for an employee to attend due to their
religious belief; or
• On a day that is not one that the employee is due to work because
they are looking after a disabled relative.
It is good practice for employers to review their use of settlement
agreements periodically, to check if there is any unintended impact on
employees with protected characteristics, as this may amount to unlawful
discrimination.
Example 7: Checking for unintended discrimination
Tomasz is the HR Director in a food distribution company which has 10
outlets located across Britain. He becomes aware that a number of
settlement agreements have been offered and reached by the company
over the past year. He conducts an equality impact review of the use of
settlement agreements by the company which reveals that they have
been largely used by local managers in relation to workers who have
reached pensionable age.
Tomasz realises that there is a risk that this pattern may constitute
unlawful discrimination on the basis of age. He arranges equality
awareness training for the local managers to ensure that they understand
that settlement agreements should not be offered in a default way to
encourage older workers to retire.
Settlement agreements and collective
redundancies
Employers proposing to make 20 or more employees redundant over a
period of 90 days or less should consider carefully their obligations to
consult collectively with employees. Where employers run voluntary
redundancy or severance schemes, employees who leave under such
schemes and sign settlement agreements may still need to be counted
when determining whether the thresholds for collective redundancy rules
have been met. Whether such employees need to be counted will depend
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33
on the circumstances under which the employees left their employment
and in particular whether the reason was ‘redundancy’ or not.
The underlying reason for the ending of an employment relationship can
still be ‘redundancy’ even where a settlement agreement has been
reached between the parties.
Further guidance on handling collective redundancies can be found in
Acas’ guidance booklet How to manage collective redundancies.
What if a settlement agreement is not reached?
Where an offer of a settlement agreement is rejected, employers can
choose not to follow up with any further action and continue with the
employment relationship unchanged. However, depending on the reason
for the settlement offer, this is unlikely to be the best way of maintaining
the effectiveness of the organisation and keeping staff motivated and
engaged. Employers should seek to tackle any underlying causes of
workplace problems – for example, by improving communications,
training or working arrangements, or by going through a performance
management or disciplinary process as appropriate.
Offers of a settlement agreement may often follow, or arise during, a
performance management or disciplinary procedure. Where this is the
case the performance management or disciplinary procedure can be
resumed.
The settlement discussions should, however, have no bearing on any such
procedure and the normal principles of fairness in such procedures must
still be applied in all cases. For example, an employee should be
encouraged and supported to improve their performance; a reasonable
investigation must be carried out into alleged misconduct; and an
employee must be given a fair disciplinary hearing in accordance with an
organisation’s own procedures and the principles contained in the Acas
Code of Practice on Disciplinary and Grievance Procedures.
Any correspondence in relation to settlement discussions should be
regarded as separate from correspondence relating to disciplinary or
performance management procedures, such as invitations to disciplinary
meetings. Moreover, any discussions that may have taken place about the
employee’s conduct or performance as part of the settlement agreement
negotiations should not form part of these procedures. For example, an
employer should not regard a discussion about poor attendance during a
settlement agreement negotiation as constituting a disciplinary warning.
Employers must always follow a fair process before an employee is
dismissed. Failure to do so will leave them vulnerable to potentially losing
any subsequent unfair dismissal claim the employee may make. Following
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34
fair procedures is also an integral part of maintaining good employment
relations throughout the workplace.
In situations where there were no disciplinary or performance concerns
prior to the settlement discussions – for example, where a breakdown in
communication or in the working relationship had prompted the
settlement discussions – ways of improving communications should be
explored. Mediation can often provide a way forward in such situations.
What happens if a settlement agreement is not
honoured?
If any provision of a settlement agreement is not honoured, for instance,
if an employer does not pay the employee the compensation set out in
the agreement, or an employee fails to abide by an agreed and legally
enforceable confidentiality clause (see p18 for guidance on this), then the
remedy is usually to claim breach of contract and damages in the County
Court or High Court (or, in Scotland, in the Sheriff Court).
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35
Annex 1: Checklist for employers proposing a
settlement agreement
Before deciding whether to offer a settlement agreement
• What is the reason you are considering a settlement agreement? Is a
settlement agreement the best way to deal with the issue? (See pp5-
9)
• Have you considered the implications for the employment relationship
with the employee if an agreement cannot be reached? And the
implications for employment relations in the wider workforce?
• Is it clear that there is no unlawful discrimination or victimisation
involved in offering a settlement agreement in the circumstances? (See
pp30-32)
Offering and negotiating a settlement agreement
• Have you carefully considered whether a financial payment should be
offered? If you are offering a financial payment is the amount an
appropriate offer for settlement? (See pp10-11)
• Will you offer to provide a reference? If so, what might that reference
say? (See pp10-11)
• Making an offer of a settlement agreement is inevitably a sensitive
issue – have you considered how best to raise the matter with the
employee? And have you thought about the appropriate information
the employee may need to allow him/her to make an informed decision
about their options?
• If writing to the employee, are you going to use or adapt one of the
Acas template letters? Or, if using a letter of your own, have you made
sure that it covers similar points to those in the Acas template letters?
(See Annexes 3 and 4)
• Will it be useful to arrange a meeting, or a series of meetings, to
discuss your proposal with the employee? Are you going to ask the
employee if they would like to be accompanied at any such meeting?
(See pp12-13)
• Do you understand the admissibility provisions relating to settlement
agreement discussions in employment tribunals and courts, and have
you made the employee aware of these provisions? (See pp18-29)
• Have you considered what might be a realistic and reasonable
timescale for any discussions and negotiations? (See p12)
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Drawing up a formal written settlement agreement
• Are you aware of all the legal requirements for a settlement agreement
to be valid? (Seee pp16-17)
• Are you going to use the model agreement set out in Annex 5 to this
guide? If so, have you read and understood the guidance on the
model? If using an alternative form of agreement, does it meet all the
legal requirements to ensure it will be valid?
• Will you offer to pay the cost, or a contribution towards the cost, of the
employee’s independent advice? (See p16)
• Do you wish to seek legal advice to help you draft the proposed formal
agreement, or to help you understand the legal implications?
• Have you given the employee a minimum period of 10 calendar days to
consider the proposed formal written terms of the settlement
agreement and to receive independent advice? (See pp11-12)
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Annex 2: Checklist for employees who have been
offered a settlement agreement
Considering whether to try to reach a settlement agreement
• What is the reason your employer is offering you a settlement
agreement?
• Are you clear about what the possible alternative outcomes might be if
a settlement agreement is not reached?
• Have you considered the potential implications for future employment
– for example, the potential advantages of securing an agreed
reference?
• Have you considered other potential implications of agreeing a
settlement agreement – for example, whether or not the agreement
will be a ‘dismissal’ and the impact that may have on your eligibility for
some benefits? (See pp15-16)
• Do you understand the admissibility provisions relating to settlement
agreement discussions, eg that such negotiations cannot normally be
used as evidence in any subsequent unfair dismissal claim? (See pp18-
29)
• Do you know that signing a settlement agreement will mean that you
cannot bring any employment tribunal or court claims listed in the
agreement?
• Do you know that settlement agreement discussions are voluntary, ie
that you do not need to enter into them, or continue with them, if you
do not wish to do so?
Discussing and negotiating a settlement agreement
• If you think you might consider settlement, have you considered what
might be a reasonable financial amount to accept? (See pp10-11)
• Is your employer offering you a reference? Or do you wish to request
one as part of the agreement? If so, have you thought about what
might be an agreeable form of wording for the reference? (See pp10-
11)
• Might it be helpful to discuss your options with a trusted third party?
• Will it be useful to request a meeting with your employer to discuss the
proposed settlement agreement? If your employer gives you the
option, do you wish to be accompanied at any such meeting, eg by a
work colleague? (See pp12-14)
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Considering the proposed formal written terms of a settlement
agreement
• Are you aware of all the legal requirements for a settlement agreement
to be valid? (See pp16-17)
• Have you taken advice from an appropriate independent adviser on the
terms of the proposed settlement agreement and its effect on your
ability to pursue your rights before an employment tribunal or other
court? A settlement agreement will not be legally valid unless you have
received such advice. (See pp16-17)
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Annex 3: Optional template letter to initiate
settlement discussions
(where there has been no previous
performance management or disciplinary action)
Dear [ ]
Your employment: Confidential settlement proposal
We are writing to you because [as we discussed on insert date of previous
discussion if applicable,] we have had some concerns about your conduct/
attendance/performance [delete as appropriate, and specify sufficient
detail about the 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 [delete as appropriate]
[we will next investigate these concerns further in accordance with our
disciplinary procedure and then decide whether it may be appropriate to
convene a disciplinary meeting [insert brief details of where the employee
can reasonably access the written disciplinary procedure].]
[we will address our concerns about your performance [in accordance
with our performance management procedure] and you will be
encouraged and supported to improve your performance before we decide
whether it may be appropriate to convene a disciplinary meeting [insert
brief details of where the employee can reasonably access the written
disciplinary procedure and, if appropriate, performance management
procedure].]
You should note that there is no obligation for you to enter into
discussions with us in relation to this proposal. Whether you choose to do
so or not, please also note that any response to this letter, and any
correspondence or discussions which may follow, will have no bearing on
any later disciplinary [or performance management] procedure or
subsequent decision taken by us, in the event that we are unable to reach
an agreement.
The terms we would like to offer you are as follows [delete terms, or add
further terms, as appropriate]:
[Your employment would end on [insert date which must take into
account the employee’s statutory or contractual notice period, or include
details of payment in lieu of notice if that is permitted by the employment
contract].]
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[You would receive:
[- payment of [£x] for [OR in lieu of] (delete as appropriate)
wages/salary, bonus/commission, and outstanding holiday entitlements,
subject to tax and NI]]
[- a [lump sum] payment of [£x] [up to £30,000]], free of tax and NI
[providing further details of how this proposed sum has been arrived at
may help the employee make an informed consideration of the proposal]
[You would agree not to bring a claim [or claims] of [refer to claim(s) that
it is proposed to settle, eg unfair dismissal] to an employment tribunal.]
[You would receive an agreed reference covering your period of
employment with us.]
[Add if appropriate: if you wish us to arrange a meeting with you to
discuss this proposal and the terms of the offer then we will do so [insert
details of contact person and method of contact]]. [Add if appropriate:
You may be accompanied by a work colleague, trade union official or
trade union representative at any such meeting.]
This offer is made subject to final agreement of full terms, and it is open
for you to consider until [insert time] on [insert date, which must be
reasonable taking account of the particular circumstances].
If you do wish to accept this offer we will draw up a formal agreement in
writing. The law provides that you would need to obtain independent
advice on the terms and effect of the proposed agreement before signing
it.
It is our intention that this letter will be covered by section 111A of the
Employment Rights Act 1996. This means that the offer we are making
and any subsequent discussion about it may not be admissible as
evidence in any subsequent unfair dismissal claim. Further information on
the provisions of section 111A and details on who may act as your
independent adviser can be found in the Acas Code of Practice on
Settlement Agreements, and associated guidance, which can be accessed
at www.acas.org.uk.
Yours sincerely,
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Annex 4: Optional template letter to initiate
settlement discussions
(where there has been previous or
there is ongoing performance management or disciplinary action)
Dear [ ]
Your employment: Confidential settlement proposal
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.]
You should note that there is no obligation for you to enter into
discussions with us in relation to this proposal. Whether you choose to do
so or not, please also note that any response to this letter, and any
correspondence or discussions which may follow, will have no bearing on
any disciplinary [or performance management] procedure or decision
taken by us, in the event that we are unable to reach an agreement.
The terms we would like to offer you are as follows [delete terms, or add
further terms, as appropriate]:
[Your employment would end on [insert date which must take into
account the employee’s statutory or contractual notice period, or include
details of payment in lieu of notice if that is permitted by the employment
contract].]
[You would receive:
[- payment of [£x] for [OR in lieu of] (delete as appropriate)
wages/salary, bonus/commission, and outstanding holiday entitlements,
subject to tax and NI]]
[- a [lump sum] payment of [£x] [up to £30,000]], free of tax and NI
[providing further details of how this proposed sum has been arrived at
may help the employee make an informed consideration of the proposal]
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[You would agree not to bring a claim [or claims] of [refer to claim(s) that
it is proposed to settle, eg unfair dismissal] to an employment tribunal.]
[You would receive an agreed reference covering your period of
employment with us.]
[Add if appropriate: if you wish us to arrange a meeting with you to
discuss this proposal and the terms of the offer then we will do so [insert
details of contact person and method of contact]]. [Add if appropriate:
You may be accompanied by a work colleague, trade union official or
trade union representative at any such meeting.]
This offer is made subject to final agreement of full terms, and is open for
you to consider until [insert time] on [insert date, which must be
reasonable taking account of the particular circumstances].
If you do wish to accept this offer we will draw up a formal agreement in
writing. The law provides that you would need to obtain independent
advice on the terms and effect of the proposed agreement before signing
it.
It is our intention that this letter will be covered by section 111A of the
Employment Rights Act 1996. This means that the offer we are making
and any subsequent discussion about it may not be admissible as
evidence in any subsequent unfair dismissal claim. Further information on
the provisions of section 111A and details on who may act as your
independent adviser can be found in the Acas Code of Practice on
Settlement Agreements, and associated guidance, which can be accessed
at www.acas.org.uk.
Yours sincerely,
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Annex 5: Model settlement agreement
The following model settlement agreement is an optional basis for a
standard agreement ending the employment relationship. It provides a
suggestion of the kind of text which can be used and is designed to be as
simple as possible. It will need tailoring to suit the needs of a particular
situation between any two parties.
It will clearly be important for both the employer and the employee to get
the agreement right. If an employer wants to use the model settlement
agreement they may wish to seek legal advice to check that their draft
agreement is accurate and achieves the settlement that they intend. If a
settlement agreement is to be legally valid, an employee must have
received independent advice before they sign the settlement agreement
(see pp16-17).
The model, and the guidance on it below, is not intended as a substitute
for legal advice, nor does it replace the requirement for the employee to
receive independent advice.
The model agreement is intended to be referred to particularly in those
cases where the employment relationship is ongoing and the parties are
discussing ending the relationship under the terms of a settlement
agreement.
The model does not cover every issue that parties may wish to include in
a settlement agreement. For example, it is common for settlement
agreements to include specific provisions dealing with other matters
which are particular to individual circumstances, such as share options
and pension entitlements. Any provisions dealing with such matters will
very much depend on the individual circumstances and it would usually be
prudent to obtain some legal advice on these issues.
The following guidance should be read alongside the model settlement
agreement. It explains what the different clauses in the model are
designed to deal with and how they should be amended to reflect your
particular circumstances.
Guidance on using the model agreement
Cover page
The agreement states that it is ‘subject to contract’. This means that, in
respect of agreements in England and Wales, the draft agreement will not
be binding on either party until it is signed. (In Scotland, this statement
indicates that it is the intention that the agreement will not be binding
until signed. However, if an agreement has in fact been reached on
essential terms then there may be a binding contract between the parties,
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regardless of the fact that the written agreement has not yet been signed
and agreement on certain details may not yet have been reached.)
If the ‘without prejudice’ rule applies, it is also advisable to state on the
cover page that the agreement is ‘without prejudice’. Where the rule does
apply, this means that the draft agreement cannot be used in evidence in
subsequent court or tribunal proceedings (except in limited
circumstances). Whether the rule applies or not will depend on whether
there is an ‘existing dispute’ between you and the employee which you
are trying to settle. For guidance on this see pp18-20. You may also wish
to seek legal advice on this.
Where a settlement agreement is being discussed with a view to ending
the employment in a situation where there is no ‘existing dispute’, it is
advisable to state on the cover page that the agreement is ‘covered by
section 111A of the Employment Rights Act 1996’. This means that the
draft agreement cannot be used as evidence in a subsequent unfair
dismissal hearing (except in limited circumstances). For guidance on this
see pp20-28.
You should insert the names of the parties. Once agreement has been
reached on the terms of the settlement agreement, you should insert the
date that the agreement is signed by the parties. If the agreement is
signed by each party on different dates then you should insert the later of
the signing dates.
The names of the parties and the date of the agreement should also be
inserted at the top of the first page of the agreement (before Clause 1).
Clause 1: Background
This clause sets out briefly that the parties are entering into a settlement
agreement and that in doing so the employer does not admit any liability.
You should enter the employee’s job title and employment start date in
Clause 1.1.
Clause 2: Definitions
This clause sets out the definitions of the terms used in the agreement. If
appropriate, you could add other terms to this list.
Clause 3: Termination Date and Notice
Clause 3.1 Where the employer and employee are agreeing to end the
employment, they will need to agree the date when employment will end
(the ‘termination date’). This agreed date should be inserted here.
Clause 3.2 You should set out here the wages/salary and any
bonus/commission or similar payments that the employee is entitled to
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receive during or at the end of the notice period. These payments will
normally be determined by the contract of employment and will be
subject to the normal rules on taxation of employment income.
Any holiday entitlement that the employee will have accrued but not
taken at the agreed termination date should be calculated and the
number of these outstanding days inserted in the agreement. (The
employee has a right to payment of any statutory holiday entitlement that
has accrued during the employment but has not been taken at the date of
termination. Entitlement to pay for any contractual holidays over and
above the statutory minimum entitlement will depend on the terms of the
employment contract.)
It should be noted that these wages/salary, bonus/commission and
holiday payments are the normal payments due at the end of the
employment contract. They do not constitute part of the agreed
‘Settlement Payment’ (on which see Clause 5 below).
Payment in lieu of notice: Alternatively, the contract of employment may
allow the employer to make a payment in lieu of notice (PILON) or, if the
employment contract does not allow this, the parties may agree that the
employee will be paid in lieu of notice. This means that the employee
does not work the notice period and the employer makes a payment to
the employee to reflect what they would have received during the notice
period, including wages/salary, bonus/commission and accrued but
untaken holidays. Where it is agreed that a PILON is to be made (whether
or not the employment contract allows for this) then details of each
element making up the PILON should be given in Clause 3.2.
From 6 April 2018, payments in lieu of notice (PILON) are subject to tax,
whether or not the PILON is contractual or non-contractual. Under HMRC
guidelines, employers are also required to calculate the amount of taxable
‘post-employment notice pay’ (PENP) using a statutory formula. For more
information, go to go to the HMRC guidance www.gov.uk/hmrc-internal-
manuals/employment-income-manual/eim13874.
‘Garden leave’: In some situations, the parties can agree that the
employee will not work during the notice period and instead be on ‘garden
leave’. You should check the contract of employment to see whether the
employee can be required or can be asked to stay on ‘garden leave’. If
the contract does not allow this, you will need to ask the employee to
agree to such an arrangement.
The payments due to the employee during ‘garden leave’ will normally be
determined by the contract of employment, or can be agreed between the
parties. However, if the employee is to go on a significant period of
‘garden leave’ (for example several months) then there are some
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important legal issues to consider and it is usually prudent to obtain
specific legal advice about this.
Clause 4: Withdrawal of Proceedings and Waiver
In reaching a settlement agreement the employee agrees to settle
particular claims, ie agrees not to pursue specified claims which they have
already presented, or which they may potentially present, to an
employment tribunal or court. Clause 4 sets out that it is acknowledged
and accepted that the agreement is made in full and final settlement of
those specified claims. It also sets out that the employee agrees to
withdraw any claims that have already been brought.
To be legally valid in waiving an individual’s right to bring a complaint or
complaints before an employment tribunal or other court, a settlement
agreement has to specifically state the claims that it is intended to cover.
These can be actual claims that have already been brought, or potential
claims not yet brought but which can be reasonably anticipated at the
time the agreement is reached. However, simply saying that the
agreement is in ‘full and final settlement of all claims’ will not be sufficient
to waive an individual’s right to bring or continue employment tribunal or
court claims.
The settlement agreement must therefore properly specify the particular
claims which the parties are agreeing to settle. For this purpose, Annex A
to the model agreement provides an extensive list of possible claims
which the parties may wish to settle.
It is important that the employer reads the list in Annex A carefully and
deletes any claims which are not relevant to, or which could not be
reasonably anticipated in, the particular situation – eg claims which, in
the circumstances, the employee could never bring. For example, if the
employee always worked full-time for the employer, the employer should
delete the reference to the Part-time Workers (Prevention of Less
Favourable Treatment) Regulations 2000. Also, claims under the Merchant
Shipping (Working time: Inland Waterways) Regulations 2003 will only be
relevant in a small number of cases involving employees in that industry,
so this should usually be deleted.
Clause 5: Settlement Payment
Clause 5.1 This clause sets out the amount of money the employer agrees
to pay to settle the claims that the employee has agreed not to take to, or
to pursue further at, an employment tribunal or court. This sum is
referred to as ‘the Settlement Payment’. (This is distinct from the normal
wages/salary, bonus/commission, holiday or other notice payments due
on the termination of employment, as specified under Clause 3).
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Clause 5.2 sets out the tax liabilities that the parties expect to attach to
the Settlement Payment. In certain circumstances, Settlement Payments
of up to £30,000 (or the first £30,000 of larger Settlement Payments)
may be paid free of tax and NI. However, the taxation of settlement
payments can be complex, and parties in any doubt should consult a tax
adviser or HMRC.
For more information, go to the HMRC’s guidance at
www.hmrc.gov.uk/manuals/eimanual/eim12800.htm (tax) and
www.hmrc.gov.uk/manuals/nimmanual/nim02510.htm (NI).
If the reason for the employee’s employment coming to an end is
redundancy, it is prudent to state the amount which is paid as
redundancy payment in Clause 5.2, as statutory redundancy payments
will not be subject to income tax and National Insurance, but a
contractually enhanced redundancy payment might be.
Clause 5.3 If the Settlement Payment, or a portion of it, is paid without
deducting tax and/or National Insurance contributions, it is common for
one of the parties to agree to pay any tax and/or National Insurance
contributions which may later become payable in respect of the Payment.
Clause 5.4 If it is agreed that a reference will be provided as part of the
settlement this should be mentioned in Clause 5. A copy of the reference
could be included as an annex to the settlement agreement. The
reference could be a simple statement of the employee’s dates of
employment and position held, or a more detailed description of their
duties, role, performance, etc. (See pp10-11 for guidance on providing an
employment reference.)
Clause 6: Conditions Regulating Settlement Agreements
There are a number of legal conditions that must be met in order for a
settlement agreement to be valid in waiving an individual’s right to bring
a complaint or complaints before an employment tribunal or other court
(see pp16-17). A valid settlement agreement must also state that these
conditions have been satisfied.
Annex B provides a list of the legislative provisions in which these legal
conditions are set out. All the provisions listed in Annex B refer to the
legal conditions set out in Box 3 in the guidance above (see p17).
Clause 6, together with Annex B, means that the parties are agreeing that
these legal conditions have been satisfied.
Clause 7: Employer’s Property and Employee’s Property
Clause 7.1 In some cases the employee will be in possession of property
or information which is owned by the company (for example, a laptop,
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mobile phone, confidential records, etc.). Where that is the case, it is
usually prudent to include this clause which specifies that, and when, the
property will be returned or information deleted. A list of the property that
needs to be returned or the information which needs to be deleted can be
included if necessary.
Clause 7.2 Covers any property that the employer is agreeing to return to
the employee.
Clause 8: Confidentiality
Clause 8.1 relates to situations where the parties agree that
confidentiality clauses and/or restrictive covenants already included in
their employment contract should remain binding after the end of the
employment relationship. It is important to specify any such terms of the
employment contract that the parties intend to remain binding, in order to
ensure that these are incorporated as part of the terms of the settlement
agreement.
In some situations, where there is no contractual right to make a
payment in lieu of notice but the employee agrees to accept one, there
are specific issues to consider if the parties also wish to agree that the
employee will remain bound by confidentiality clauses or restrictive
covenants in the employment contract. It would be advisable to obtain
separate legal advice in this situation.
Where no such provisions are contained in the employment contract then
Clause 8.1 should be deleted.
Clause 8.2 relates to situations where the parties agree to keep the
settlement agreement itself confidential (except for limited exceptions).
Where this is not a part of the agreed terms in a particular situation then
this clause should be deleted.
All such confidentiality clauses are voluntary and are a matter for the
parties to agree during the course of the settlement discussions.
Confidentiality clauses should only be used when necessary and should
not be included in settlement agreements as a matter of course. If a
confidentiality clause is to be used, it should include wording to make it
clear that the individual’s statutory right to make a protected disclosure of
matters in the public interest (‘whistleblowing’) is not affected. The
wording should not seek to discourage the individual from raising
concerns, for example about wrongdoing, poor practice or unlawful
conduct in the employer’s organisation. See p18 of this guide.
Sometimes the parties will also want to agree that they will not make
derogatory comments about each other after the settlement agreement
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49
has been concluded. Such a clause is not included in the model
agreement but could be inserted here.
Clause 9: Employee’s Representations and Warranties
Clause 9.1 sets out an undertaking by the employee about their conduct
during the employment relationship.
Clause 9.2 means that, if it turns out that the employee was not truthful
in relation to the undertaking in Clause 9.1, then the employer may be
able to withhold or recover the Settlement Payment and/or potentially sue
the employee for any relevant losses or damages.
Clause 10: Employee’s Advice and Costs
Clause 10.1 It is a legal requirement that the agreement records that the
employee has received advice from a relevant independent adviser.
An independent adviser can be a qualified lawyer, or a certified and
authorised officer, official, employee or member of an independent trade
union or a certified and authorised advice centre worker. The adviser
must not be employed by, acting for, or connected with the employer.
Clause 10.2 An employer may, if he or she wishes, pay for this advice.
There is no legal requirement to do so, but employers may wish to offer
to pay any such fee, or a contribution towards it, in the interests of
ensuring that the employee gets the necessary advice. This clause sets
out how much an employer is willing to contribute. If the employer is not
contributing anything, this clause should be deleted.
For information on the taxation of payments made to meet such costs, go
to www.hmrc.gov.uk/manuals/eimanual/eim13740.htm
Clause 11: Entire Agreement and Enforceability
Clause 11.1 In many cases the parties will want the settlement
agreement to supersede any previous agreement between them, such as
the terms of the employment contract. If this is the intention of both
parties then Clause 11.1 should be included to make this clear. (In
Scotland this clause may be open to challenge if the statement does not
genuinely reflect the common intention of the parties.) Clause 8.1 can be
used to specify any relevant provisions in the employment contract, such
as confidentiality clauses or other restrictive covenants, which the parties
do intend to continue to apply.
Clause 11.2 provides clarification that the agreement may only be varied
by the agreement of both parties.
Clause 11.3 explains the enforceability of the terms of the agreement.
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Clause 12: Jurisdiction
This clause sets out the jurisdiction under which the agreement is made
and optional wording is provided for agreements that will be covered by
the law of England and Wales, and those that will be covered by Scots
law. The wording that is not relevant to a particular settlement agreement
should be deleted.
If the agreement is to be governed by Scots law then there are some
parts of the agreement where additional or alternative text will need to be
included. (In addition to Clause 12, this applies to Clauses 2.1, 5.1, 6 and
13 and to the headings to Annexes A, B and C.) Optional text has been
included in each instance which should be included or deleted as
appropriate.
Clause 13: Parties to the Settlement Agreement
This clause makes it clear that only the employer and employee will have
any rights under the settlement agreement.
The wording required here is different depending on whether the
agreement is being made under the jurisdiction of the law of England and
Wales, or of Scots law. The wording that is not relevant to a particular
settlement agreement should be deleted.
The final sentence in the model agreement makes it clear that the parties
are agreeing that, once the agreement has been signed and dated, it will
become a legally binding document.
Signing
The employer should ensure that the document is signed by an authorised
signatory.
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Model Settlement Agreement
Dated [enter date DD/MM/YYYY]
SETTLEMENT AGREEMENT
(Subject to Contract)
[Insert name of Employer]
-And-
[Insert name of Employee]
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THIS SETTLEMENT AGREEMENT (the ‘Agreement’) is dated
[enter date DD/MM/YYYY].
This Agreement is made between [insert Employer name] (‘the
Employer’) and [insert Employee name] (‘the Employee’).
1: Background
1.1. The Employee has been employed by the employer as [enter job
title] since [enter start date].
1.2. The Employer and Employee have agreed to settle the Particular
Claims on the terms set out in this Agreement.
1.3. The Employer enters into this Agreement without any admission of
liability.
2: Definitions and Interpretations
2.1. In this agreement:
‘Claims’ means any claim, claims or causes of action that the Employee
has or may have against the Employer.
‘Particular Claims’ are those Claims which the Employee and Employer
intend to be settled by this Agreement, arising out of the Employee’s
employment or the termination of employment, as set out in Annex A [if
the Agreement is being used in Scotland the following additional words
should be inserted at the end of this clause: ‘as set out in Annex A which
is hereby incorporated into this agreement’].
‘Termination Date’ means the date on which the employment has ended
or will end, as set out in Clause 3.1.
2.2. References to the singular in this Agreement shall include
references to the plural and vice versa and words in the masculine include
the feminine and vice versa.
2.3. The headings in this Agreement are for ease of reference and shall
not affect interpretation.
3: Termination Date and Notice
3.1. The Employee’s employment with the Employer will terminate on
[enter date DD/MM/YYYY] (‘the Termination Date’). The Employer and
Employee will continue to be bound by the terms and conditions of
employment until the Termination Date.
3.2. [Provided that the Employee continues to comply with the terms
and conditions of their employment, the Employer will pay the Employee’s
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53
usual wages/salary [and bonus/commission] (less tax and National
Insurance contributions) up to and including the Termination Date. [Along
with the final wages/salary/bonus/commission payment, the Employer will
also pay a sum in respect of [insert number] days accrued but untaken
holidays (less tax and National Insurance contributions).]]
[OR]
[The Employer will pay the Employee [insert number] weeks’ pay in lieu
of notice (PILON) which will be paid less tax and National Insurance
contributions. This PILON comprises [insert details of amounts
corresponding to wages/salary, bonus/commission, accrued but untaken
holidays, and so on.] The amount of post-employment notice pay (PENP)
for HMRC purposes is [insert amount].]
3.3 Except as set out in this Agreement, the employee will have no right
to any benefits under the terms and conditions of employment after the
termination date.
4: Withdrawal of Proceedings and Waiver
4.1. The Employee accepts that this Agreement is in full and final
settlement of all of the Particular Claims set out in Annex A.
4.2. The Employee agrees immediately upon signature of this Agreement
to write to the relevant employment tribunal(s) or court(s) to withdraw
any proceedings that have already been presented but which have been
settled by this Agreement, and not to present to an employment tribunal
or any other court any Claim which is a Particular Claim.
4.3. The Employer and Employee acknowledge that it is their intention
that this Agreement is in full and final settlement of all of the Particular
Claims.
5: Settlement Payment
5.1. Subject to the Employee complying with the terms of this
Agreement, the Employer will pay the Employee [£insert figure] (‘the
Settlement Payment’). The Settlement Payment will be paid within 14
days of receipt by the Employer of a signed copy of this Agreement and
the signed certificate from the Employee’s adviser which is set out at
Annex C [if the Agreement is being used in Scotland the following
additional words should be inserted at the end of this clause: ‘Annex C,
which is hereby incorporated into this Agreement’].
5.2. The Employer and Employee believe that [the first £30,000 of] the
Settlement Payment is not subject to tax or National Insurance.
Settlement agreements
54
prospective employer, will do so in a manner which is consistent with the
agreed reference.]
6: Conditions Regulating Settlement Agreements
The Employer and the Employee agree and acknowledge that the
conditions regulating settlement agreements which are contained in the
legislative provisions listed in Annex B [if the Agreement is being used in
Scotland the following additional words should be inserted here: ‘which is
hereby incorporated into this Agreement’] have been satisfied.
[7: Employer’s Property and Employee’s Property
7.1. The Employee warrants that [he/she] [has returned] [OR will return
by the Termination Date] [OR will return by (insert agreed date)] all
property belonging to the Employer, including all records,
correspondence, documents and any other information and that the
Employee has not retained any copies.
7.2. The Employer warrants that it [has returned] [OR will return by the
Termination Date] [OR will return by (insert agreed date)] all property
belonging to the Employee.]
8: Confidentiality
8.1. [The Employee agrees that [he/she] will continue to be bound by
the terms and conditions of employment which relate to confidentiality
and restrictive covenants: see clause[s] [insert number(s)] of those
terms and conditions. For the avoidance of doubt, those terms do not
affect the Employee’s right to make, nor otherwise prevents the Employee
from making, a public interest disclosure under the Public Interest
Disclosure Act 1998 (PIDA).]
8.2. [The Employer and Employee agree that they will keep the
existence and terms of this Agreement confidential (with the exception of
disclosure to immediate family or relevant professional advisers, provided
that those persons agree to keep the information confidential, or where
disclosure is required by law). For the avoidance of doubt, this clause
does not affect the Employee’s right to make, nor otherwise prevents the
Employee from making, a public interest disclosure under the Public
Interest Disclosure Act 1998 (PIDA).]
5.3. The [Employee/Employer] agrees to indemnify the [Employer/
Employee] for any further tax and/or Employee’s National Insurance
contributions due in respect of the Settlement Payment.
5.4. [The Employer agrees to provide the Employee with a reference in
the terms agreed in the attached Annex [identify the Annex], and when
responding to a written or verbal request for a reference from a
Settlement agreements
55
9.1. The Employee represents and warrants that there are no
circumstances of which [he/she] is aware or ought reasonably to be
aware which would amount to a material breach of the terms and
conditions of employment which would justify summary dismissal.
9.2. The Employee acknowledges that the Employer has acted in reliance
on these representations and warranties in entering into this Agreement.
10: Employee’s Advice and Costs
10.1. The Employee confirms that [he/she] has received advice from an
independent adviser (‘the Adviser’) as to the terms and effect of this
Agreement, including its effect on the Employee’s ability to present any
Claim before an employment tribunal or other court.
10.2. The Employer will pay the Employee’s reasonable costs incurred in
connection with the preparation of this Agreement up to a maximum of
[£insert figure] plus VAT. Such fees will be payable directly to the
Adviser on receipt from the Adviser of an invoice addressed to the
Employee and marked payable by the Employer. The Employer agrees to
pay these costs within 30 days of receipt of the invoice.
11: Entire Agreement and Enforceability
11.1. This Agreement sets out the entire agreement between the parties
and supersedes all prior statements, representations, terms and
conditions, warranties and guarantees whenever given and whether orally
or in writing.
11.2. No variation of this Agreement shall be effective unless it is agreed
by both parties and in writing.
11.3. If any term of the Agreement is held to be illegal, invalid or
unenforceable, in whole or in part, such part shall be deemed not to form
part of the Agreement but the legality, validity or enforceability of the
remainder of the Agreement shall not be affected.
12: Jurisdiction
[This Agreement shall be governed by and construed in accordance with
the law of England and Wales and the parties agree to submit to the
exclusive jurisdiction of the courts in England and Wales in relation to any
Particular Claim or any matter connected with this Agreement.]
[OR, if the Agreement is being used in Scotland]
[This Agreement shall be governed by and construed in accordance with
Scots law and the parties agree to submit to the exclusive jurisdiction of
9: Employee’s Representations and Warranties
Settlement agreements
the Scottish courts in relation to any Particular Claim or any matter
56
connected with this Agreement.]
13: Third Parties
[The Contracts (Rights of Third Parties) Act 1999 shall not apply to this
Agreement and only the Employer and Employee shall have rights under
it.]
[OR, if the Agreement is being used in Scotland]
[The parties intend that no third party shall have rights under this
Agreement.]
Notwithstanding that this Agreement is marked ‘subject to contract’, once
it has been signed and dated by the Employer and Employee it will
become an open and binding document [insert the words “(subject to
Clause 8.2)” if that clause has been included in the Agreement].
..........................................................
Signed by Date
on behalf of the Employer
.........................................................
Signed by the Employee Date
Settlement agreements
57
ANNEX A
THE PARTICULAR CLAIMS
[If the Agreement is being used in Scotland the following text should be
added here: ‘This is Annex A to the Settlement Agreement between
[insert name of Employer] and [insert name of Employee] as
referred to and incorporated into that Agreement.]
The matters listed below are Particular Claims:
[Delete the first sentence and table if none of the claims being settled
has yet been presented to an employment tribunal]
The following Employment Tribunal claims:
Claim number This claim concerns
[insert claim number] [insert brief details of claim]
[repeat as necessary] [repeat as necessary]
The following claims arising from the Employee’s employment or the
termination of employment:
[Delete any claims in this list that are not relevant]
1. Under the Trade Union and Labour Relations (Consolidation) Act
1992 (TULRA):
(a) sections 68 (deduction of unauthorised subscriptions)
(b) section 86 (exemption or objection to contributing to
political fund)
(c) section 137 (refusal of employment on grounds related to
union membership)
(d) section 145A (inducements relating to union membership or
activities)
(e) section 145B (inducements relating to collective bargaining)
(f) section 146 (detriment on grounds related to union
membership or activities)
(g) section 152 (dismissal on grounds related to union
membership or activities)
(h) section 153 (selection for redundancy on grounds related to
union membership or activities)
(i) section 168 (time off for carrying out trade union duties)
Settlement agreements
58
(j) section 168A (time off for union learning representatives)
(k) section 169 (payment for time off for union learning
representative activities)
(l) section 170 (time off for trade union activities)
(m) section 191 (termination of employment during protected
period)
(n) section 192 (failure to pay remuneration under a protective
award)
(o) sections 238 and 238A (dismissal connected to industrial
action)
(p) paragraph 156 of Schedule A1 (detriment on grounds
related to union recognition, bargaining or voting)
(q) paragraph 161 of Schedule A1 (dismissal on grounds related
to union recognition, bargaining or voting)
(r) paragraph 162 of Schedule A1 (selection for redundancy on
grounds related to union recognition, bargaining or voting)
2. Under the Employment Rights Act 1996 (ERA):
(a) section 8 (right to itemised pay statement)
(b) section 13 (right not to suffer unauthorised deductions)
(c) section 15 (right not to have to make payments)
(d) section 28 (right to guarantee payment)
(e) Part V (protection from suffering detriment)
(f) Part VI (time off work)
(g) Part VII (suspension from work)
(h) section 63F (request in relation to training and study)
(i) section 80(1) (in relation to the postponement, attempted
prevention or prevention of parental leave)
(j) sections 80F and 80G (duties in relation to an application for
a change in terms and conditions of employment for flexible
working)
(k) section 92 (right to written statement of reasons for
dismissal)
(l) Part X (unfair dismissal)
(m) section 135 (right to a redundancy payment)
Settlement agreements
3. Any claim under the Protection from Harassment Act 1997
4. Under the National Minimum Wage Act 1998:
(a) Section 10 (worker’s right of access to records)
(b) Section 23 (right not to suffer a detriment)
5. Under section 10 (right to be accompanied) of the Employment
Relations Act 1999
6. Under Part 5 of the Equality Act 2010:
(a) Direct discrimination;
(b) Discrimination arising from disability
(c) Indirect discrimination
(d) In respect of the duty to make adjustments
(e) Harassment
(f) Victimisation
(g) In relation to the:
(i) effect of a non-discrimination rule
(ii) effect, or a breach, of an equality clause or rule
(iii) enforceability of a contractual or non-contractual term
7. That the Employer instructed, caused, induced or knowingly aided
any act which is unlawful under the Equality Act 2010.
8. Under the Working Time Regulations 1998:
(a) regulations 10(1) and (2) (daily rest)
(b) regulations 11(1), (2) and (3) (weekly rest period)
(c) regulations 12(1) and (4) (rest breaks)
(d) regulation 13 (entitlement to annual leave)
(e) regulation 13A (entitlement to additional annual leave)
(f) regulation 14(2) (entitlement to compensation related to
entitlement to leave where worker’s employment terminated
during leave year)
(g) regulation 16(1) (payment in respect of periods of annual
leave)
(h) regulation 24 (compensatory rest where worker required to
work during rest period or rest break)
59
Settlement agreements
(i) regulation 24A (adequate rest for mobile workers where
relevant parts of regulations 10, 11 and 12 are excluded)
(j) regulation 27(2) (compensatory rest for young workers
where there has been a force majeure)
(k) regulation 27A(4)(b) (compensatory rest for young workers
under other exceptions)
9. Under regulation 19 (detriment relating to pregnancy, maternity
or parental leave) of the Maternity and Parental Leave etc
Regulations 1999.
10. Under the Transnational Information and Consultation Regulations
1999:
(a) regulation 25 (right to time off for members of a European
Works Council)
(b) regulation 26 (right to remuneration for time off)
(c) regulation 31 (right not to suffer a detriment)
11. Under the Part-time Workers (Prevention of Less Favourable
Treatment) Regulations 2000:
(a) regulation 5 (less favourable treatment on the grounds of
being a part-time worker)
(b) regulation 7(2) (right not to be subjected to a detriment)
12. Under the Fixed-term Employees (Prevention of Less Favourable
Treatment) Regulations 2002:
(a) regulation 3 (less favourable treatment on the grounds of
being a fixed-term employee)
(b) regulation 6(2) (right not to be subjected to a detriment)
(c) regulation 8 (successive fixed-term contracts)
(d) regulation 9 (right to receive written statement of variation)
13. Under regulation 28 (detriment relating to paternity or adoption
leave) of the Paternity and Adoption Leave Regulations 2002
14. Under the Merchant Shipping (Working time: Inland Waterways)
Regulations 2003:
(a) regulation 10 (entitlement to adequate rest)
(b) regulation 11 (entitlement to annual leave and payment for
leave)
60
Settlement agreements
61
15. Under the Fishing Vessels (Working Time: Sea-fishermen)
Regulations 2004:
(a) regulation 7 (entitlement to adequate rest)
(b) regulation 11 (entitlement to annual leave and payment for
leave)
16. Under the Information and Consultation of Employees Regulations
2004:
(a) regulation 27 (right to time off for information and
consultation representatives)
(b) regulation 28 (right to remuneration for time off)
(c) regulation 32 (right not to suffer a detriment)
17. Under regulation 13 (duty to inform and consult representatives)
of the Transfer of Undertakings (Protection of Employment)
Regulations 2006
18. Under the Occupational and Personal Pension Schemes
(Consultation by Employers and Miscellaneous Amendment)
Regulations 2006:
(a) schedule, para. 2 (right to time off for functions as a
representative)
(b) schedule, para. 3 (right to remuneration for time off for
functions as a representative)
(c) schedule, para. 8 (right not to be subject to a detriment)
19. Under the Companies (Cross-Border Mergers) Regulations 2007:
(a) regulation 43 (right to time off for members of special
negotiating body etc.)
(b) regulation 44 (right to remuneration for time off in capacity
as member of special negotiating body)
(c) regulations 49 or 50 (right not to be subject to a detriment)
20. Under the Cross-border Railway Services (Working Time)
Regulations 2008:
(a) regulation 3 (entitlement to daily rest)
(b) regulation 4 (sole driver’s entitlement to break)
(c) regulation 5 (breaks for drivers)
(d) regulation 6 (breaks for other drivers)
(e) regulation 7 (entitlement to weekly rest)
Settlement agreements
62
21. Under the European Public Limited-Liability Company (Employee
Involvement) (Great Britain) Regulations 2009:
(a) regulation 26 (time off for membership of a special
negotiating body)
(b) regulation 27 (remuneration for time off)
(c) regulation 31 (detriment for membership of a special
negotiating body)
22. Under the Employment Relations Act 1999 (Blacklists) Regulations
2010:
(a) regulation 5 (refusal of employment relating to a prohibited
list)
(b) regulation 6 (refusal of employment agency services
relating to a prohibited list)
(c) regulation 9 (detriment relating to a prohibited list)
23. Under regulation 33 (detriment relating to additional paternity
leave) of the Additional Paternity Leave Regulations 2010
24. For personal injury (except any latent personal injury)
25. For breach of contract
26. In relation to notice or pay in lieu of notice.
27. [Any other claim arising under UK statute, UK common law and/or
under European Law (except any accrued and future pension
rights) which the parties wish to settle can be added here. Any
such claim or claims must be specifically listed.]
Settlement agreements
ANNEX B
CONDITIONS REGULATING SETTLEMENT AGREEMENTS
[If the Agreement is being used in Scotland the following text should be
added here: ‘This is Annex B to the Settlement Agreement between
[insert name of Employer] and [insert name of Employee] as
referred to and incorporated into that Agreement.]
• section 288(2B) of the Trade Union and Labour Relations
Consolidation Act 1992
• section 203(3) of the Employment Rights Act 1996
• section 49(4) of the National Minimum Wage Act 1998
• section 147(3) of the Equality Act 2010
• regulation 35(3) of the Working Time Regulations 1998
• regulation 41(4) of the Transnational Information and Consultation of
Employees Regulations 1999
• regulation 9 of the Part-time Workers (Prevention of Less Favourable
Treatment) Regulations 2000
• regulation 10 of the Fixed-term Employees (Prevention of Less
Favourable Treatment) Regulations 2002
• the Employment Relations Act 1999
• the Merchant Shipping (Working Time: Inland Waterways)
Regulations 2003
• sub-paragraphs (a) to (e) of r40(4) of the Information and
Consultation of Employees Regulations 2004
• the Fishing Vessels (Working Time: Sea-fishermen) Regulations 2004
• sub-paragraphs (a) to (e) of paragraph 13(1) of the Schedule to the
Occupational and Personal Pension Schemes (Consultation by
Employers and Miscellaneous Amendment) Regulations 2006
• sub-paragraphs (a) to (e) of r62(4) of the Companies (Cross-Border
Mergers) Regulations 2007
• the Cross-border Railway Services (Working time) Regulations 2008
• sub-paragraphs (a) to (e) of r39(4) of the European Public Limited-
Liability Company (Employee Involvement) (Great Britain)
Regulations 2009
63
Settlement agreements
ANNEX C
DECLARATION FROM THE EMPLOYEE’S INDEPENDENT ADVISER
[If the Agreement is being used in Scotland the following text should be
added here: ‘This is Annex C to the Settlement Agreement between
[insert name of Employer] and [insert name of Employee] as
referred to and incorporated into that Agreement.]
I can confirm that:
1. I am a relevant independent adviser within the meaning of the
legislation listed in Annex B above.
2. I advised [insert name of Employee] (‘the Employee’) on the
terms and effect of the agreement between [him/her] and [insert
name of Employer] and, in particular, its effect on [his/her]
ability to pursue [his/her] rights before an employment tribunal or
other court.
3. At the time that I provided advice to the Employee, a contract of
insurance, or an indemnity provided for members of a
professional body, covering the risk of a claim by the Employee in
respect of loss arising as a consequence of my advice was in
force.
Signed ......................................................
Adviser’s organisation ......................................................
Address of Adviser’s organisation......................................................
64
Settlement agreements
Annex 6: An illustration of the admissibility of
settlement agreement negotiations in unfair
dismissal cases
(How s.111A works alongside the ‘without prejudice’ principle)
This flowchart illustrates how, in general, these provisions may be
applied. However, their application in an individual case is a matter for
the employment tribunal to decide.
Is there an ‘existing dispute’
and a genuine attempt to settle
that dispute
at the time when settlement is offered?
(see pp19–20)
‘Without prejudice’
can apply
Has there been any
unambiguous
impropriety?
(see p19)
Settlement
negotiations
NOT
admissible
in unfair
dismissal cases
Pre-termination
settlement
negotiations
NOT
admissible
in unfair
dismissal cases
Pre-termination
settlement
negotiations
likely to be
admissible
in unfair
dismissal cases
Settlement
negotiations
likely to be
admissible
in unfair
dismissal cases
Has there been any
improper
behaviour?
(see pp23-28)
pp2
Section 111A
can apply
Yes
No Yes
Yes
No
No
65
Settlement agreements
66
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