1. Parties and termination
- Correct legal name of the employing entity, and group companies given the benefit of the waiver.
- Termination date, and whether notice is worked, on garden leave or paid in lieu.
- The agreed reason for termination.
- Arrangements up to termination: duties, handover, holiday to be taken.
2. Payments
- Salary and benefits to the termination date.
- Notice pay, with post-employment notice pay calculated and taxed.
- Accrued holiday pay.
- Statutory and any enhanced redundancy pay.
- Bonus, commission and share awards: what is paid, what lapses and how discretion is exercised.
- The termination payment, split into the tax-free part and the taxable excess.
- Any pension contribution.
- Payment dates, and conditions such as receipt of the signed agreement and return of property.
3. Tax
- A statement of how each payment will be taxed.
- An employee indemnity for further income tax and employee National Insurance.
- Employer Class 1A National Insurance on any excess over £30,000 budgeted and reported.
- A nominal, taxed sum allocated to any new restrictive covenants or confidentiality undertakings.
4. Waiver of claims
- The particular claims the employee has or may have, named individually with the statutory reference.
- A schedule of other statutory and common law claims.
- Wording clear enough to cover claims not yet known, if that is intended.
- Carve-outs for accrued pension rights, latent personal injury and enforcement of the agreement.
- If proceedings have been issued, an obligation to withdraw them.
5. Statutory compliance
- A statement that the employee has received advice from a relevant independent adviser on the terms and effect of the agreement.
- The adviser's name and firm.
- Confirmation that the adviser has insurance or indemnity cover.
- A statement that the conditions regulating settlement agreements are satisfied, citing each relevant provision: section 203(3) of the Employment Rights Act 1996, section 147 of the Equality Act 2010 and the equivalents in the other statutes listed.
- An adviser's certificate as a schedule.
6. Warranties from the employee
- No other claims and no knowledge of circumstances that could give rise to one.
- No conduct that would have justified summary dismissal.
- No new employment accepted or offered, if the payment assumes none. Give the employee the chance to disclose.
- Company property returned and confidential information deleted.
7. Confidentiality and non-derogatory comments
- Scope limited to what is needed: the terms, and business confidential information.
- Express carve-outs for protected disclosures, reporting crime, co-operating with regulators and law enforcement, giving evidence, and taking professional advice.
- Compliance with section 17 of the Victims and Prisoners Act 2024 on disclosures by victims of crime.
- Permitted disclosure to family, advisers, HMRC and prospective employers.
- Mutual non-derogatory undertakings where the employee asks.
- Plain language. The employee must be able to understand what they can and cannot say.
When section 202A of the Employment Rights Act 1996 comes into force, expected in 2027, terms preventing a worker from speaking about harassment or discrimination will be void unless the agreement is an excepted agreement under regulations. Build a review of this clause into your process. See confidentiality clauses and NDAs.
8. Reference and announcements
- Agreed reference as a schedule, and who will give it.
- How verbal enquiries will be answered.
- A right to depart from the wording if required by law or a regulator, or if new information comes to light.
- Agreed internal and external announcements where relevant.
9. Post-termination restrictions
- Existing covenants reaffirmed, or expressly released.
- Garden leave set off against restricted periods.
- Any new covenants reasonable in scope and supported by payment.
10. Housekeeping
- Return of property and deletion of data.
- Resignation from directorships and trusteeships, with a signed letter as a schedule.
- Reasonable co-operation with handover and litigation, with expenses.
- Contribution to legal fees: amount plus VAT, payable direct to the adviser's firm on invoice.
- Entire agreement, governing law and third-party rights for group companies.
- "Without prejudice and subject to contract" until signed, and open thereafter.
11. Signing
- The employee signs after advice.
- The adviser signs the certificate.
- An authorised signatory signs for the employer.
- If the employee will work on after signing, consider a second "reaffirmation" certificate at the termination date to cover the intervening period.
- Diary the payment dates.
Frequently asked questions
Can we use a template settlement agreement?
Yes, as a starting point. It must be tailored to the employee's claims, payments and circumstances, and kept up to date with changes in the law.
Does the employee's solicitor need to sign?
The adviser must be identified in the agreement. A signed adviser's certificate is the standard way to evidence that the advice was given and that insurance is in place.
Can the agreement be signed electronically?
Yes. Electronic signatures are valid for settlement agreements.
Is the agreement binding before we sign it?
Not if it is marked subject to contract. It binds when all parties have signed, so countersign promptly.
Sources
About this guide. This page is general information, not legal advice, and reflects the law and published government plans on the date shown above. Frederick George is a legal referral service, not a law firm. For advice on your own circumstances we will introduce you to an SRA-regulated solicitor.