HR & EMPLOYMENT LAW
Resolve the situation on the right terms.
Considering an agreed employee exit or already discussing settlement? We assess the legal and commercial position, advise whether settlement makes sense, help plan and negotiate the approach, and prepare the agreement required to bring the matter to a proper conclusion.
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A COMMERCIAL DECISION
A settlement agreement can provide certainty, bring a difficult employment situation to an agreed conclusion and allow the business to move forward. But the existence of a dispute does not automatically mean that paying to settle it is the right answer.
We start with the outcome you need and assess the realistic alternatives. That means looking at the strength of your position, the legal risk, the time and management attention another process may require, the potential disruption to the business and the value of achieving an agreed exit now.
Where an agreement gives the business greater certainty, speed or commercial value than continuing another route, we help structure and negotiate it properly. Where it does not, we will tell you.
Good absence management means understanding what is happening, maintaining appropriate communication and setting clear expectations — while giving proper consideration to the employee’s health, any medical information and the needs of the role.
We look beyond the headline payment and consider the wider commercial position — including the strength of the case, management time, disruption, likely process duration, potential legal exposure and what certainty is worth to the business.
The question is not simply whether you can settle. It is whether you should.
WHEN SETTLEMENT MAY HELP
There is no single type of employment problem that automatically calls for a settlement agreement. The question is whether an agreed resolution would produce a better outcome than continuing with the realistic alternatives.
Employers often consider settlement where:
Trust or confidence has deteriorated to the point where continuing the relationship may be difficult for either side.
A formal process may still be appropriate, but there are situations where an agreed exit offers greater certainty and avoids a lengthy management process.
Allegations, counter-allegations or wider employee-relations issues can sometimes make a negotiated resolution commercially sensible.
The business may want greater control over timing, communications, confidentiality, references and practical exit arrangements.
Settlement can sometimes form part of the wider strategy where an agreed departure is preferable to continuing through another process.
Settlement may remain an option before or during a dispute, but the strength of the employer's underlying position should still be assessed properly.
The trigger is not the type of HR problem. It is whether an agreed outcome is better than the realistic alternative.
HOW WE SUPPORT YOU
A settlement agreement is rarely just a document. The real work is deciding whether settlement is the right route, approaching the employee properly, negotiating terms that make commercial sense and ensuring the final agreement reflects what has actually been agreed.
Harrington Raine can support the process from the outset, whether you are considering making an offer for the first time or are already in discussions.
01
We review the background, understand the outcome you want and assess the legal and commercial risks before recommending whether settlement should be explored.
02
We help you decide how and when to raise settlement, who should lead the conversation and what parameters should be agreed internally before any offer is made.
03
We help shape the financial and practical terms, including termination arrangements, notice, outstanding payments, references, confidentiality and other relevant exit terms.
04
Where negotiations develop, we can help manage proposals, counter-proposals and amendments so that the process remains controlled and commercially focused.
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We prepare the settlement documentation and deal with revisions required to bring the agreement to completion.
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We can also help with the surrounding arrangements, including communications, return of property, announcements and the steps needed to implement the agreed departure properly.
BEFORE THE CONVERSATION
How a settlement proposal is introduced can affect what happens next. Before speaking to the employee, it is worth being clear about the outcome you want, the terms you are prepared to offer and what the business will do if no agreement is reached.
A well-planned approach gives the employer room to negotiate without losing control of the underlying employment situation.
Be clear about the proposed exit date, financial parameters and any practical terms that matter to the business before discussions begin.
Consider what happens if the employee rejects the proposal. A performance, disciplinary, redundancy or other employment process may still need to continue properly.
Who raises settlement, when they do it and how the proposal is explained can all matter. The employee should understand that settlement is voluntary and that they can reject or negotiate the terms.
Settlement discussions are not automatically confidential simply because they are described as “off the record”. Section 111A protection is primarily concerned with ordinary unfair dismissal claims, while without-prejudice protection generally requires an existing dispute and a genuine attempt to settle it. Other claims, including discrimination, can fall outside section 111A protection.
Do not make an offer you have not thought through — particularly if the employment relationship may need to continue if it is rejected.
THE SETTLEMENT FIGURE
There is no standard settlement figure that works for every employment situation. A sensible offer starts with understanding what the employee is already entitled to receive and then deciding whether any additional payment is commercially justified in return for reaching an agreement.
Depending on the circumstances, the employee may already be entitled to sums such as salary, accrued holiday, notice pay or other contractual payments.
These amounts should be identified separately. They are not necessarily the price of settlement — they may be payments the employer would need to make in any event.
The additional amount is where the commercial judgement comes in.
We consider factors such as:
the strength of the employer’s legal position;
the nature and value of any potential claims;
the likely time and cost of continuing another process;
management disruption;
the employee’s seniority and remuneration;
how quickly the business wants certainty;
the negotiating position on both sides.
The right settlement figure is not the highest amount an employee might ask for. It is the amount that makes the agreement commercially preferable to the realistic alternative.
A higher offer is not automatically a better strategy. Equally, starting unrealistically low can make an otherwise workable resolution harder to achieve.
We help employers decide where to open negotiations, what flexibility to retain and when the economics of continuing to negotiate no longer make sense.
BEYOND THE PAYMENT
A settlement agreement is not simply a payment in return for an employee leaving. It defines how the employment relationship will end, what each side agrees and what happens afterwards.
Depending on the circumstances, the agreement may need to deal with:
The agreed termination date, notice arrangements and any payment in lieu of notice.
Salary, accrued holiday and any other sums that need to be dealt with on termination.
The additional payment being made in return for the agreement, together with the agreed payment arrangements.
What reference will be provided, how the departure will be communicated internally or externally, and whether agreed wording is needed.
Appropriate provisions dealing with confidential business information and, where suitable and lawful, the confidentiality of the agreement or circumstances surrounding the departure.
Existing restrictive covenants, return of company property and any obligations that should continue after employment ends.
A good settlement agreement does more than record a number. It creates certainty around how the relationship ends and what both sides can expect afterwards.
THE OTHE HARRINGTON RAINE APPROACH
Settlement works best when the business knows what it wants to achieve before negotiations begin.
We start with the outcome, assess the realistic alternatives and establish the parameters within which a deal makes commercial sense. From there, we can help manage the negotiation and prepare the documentation needed to complete it.
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What does the business need to achieve, and which terms genuinely matter?
02
We consider the legal position, commercial risk and realistic alternative if no agreement is reached.
03
We advise whether settlement is the right route and establish the commercial parameters for negotiation.
04
We help manage proposals, counter-proposals and amendments without losing sight of the outcome the business needs.
05
We prepare and revise the agreement, deal with the practical exit terms and help ensure what has been agreed is implemented properly.
We do not recommend settlement simply to remove risk. We assess whether it produces the better outcome — then help negotiate and document the deal properly.
SETTLEMENT AGREEMENT FAQs
Settlement agreements can raise questions about timing, confidentiality, payments and what happens if an employee does not agree. Here are some of the issues employers most commonly need to understand.
Related employer support:
Broader advice on difficult employment decisions.
Ongoing advice, drafting and day-to-day employer support.
Support if an employment dispute becomes a Tribunal claim.
See the options for ongoing HR & Employment Law support.
A settlement agreement is a legally binding written agreement used to resolve particular employment claims or disputes. It can be used to bring employment to an agreed end, although settlement agreements can also be reached without employment terminating.
For the agreement to validly waive the relevant statutory claims, specific legal requirements must be satisfied, including the employee receiving advice from an appropriate independent adviser.
Settlement may be worth considering where an agreed outcome offers greater commercial certainty than continuing another route. That might arise during performance, disciplinary, grievance, redundancy or other employment situations, or where a dispute or potential claim has developed.
The existence of a difficult employee situation does not automatically mean settlement is the right answer. The realistic alternative, legal position, management time, cost and desired outcome should all be considered first.
No. Settlement agreements are voluntary. An employee can reject the proposal, accept it or negotiate different terms.
An employer should therefore consider what happens if agreement cannot be reached before opening negotiations.
There is no standard figure.
The appropriate amount depends on factors including what the employee is already owed, the strength and potential value of any claims, the employer's legal position, the likely cost and duration of an alternative process and the commercial value of reaching an agreed outcome.
The settlement figure should be based on the circumstances rather than an arbitrary number of months' salary.
Potentially. Section 111A of the Employment Rights Act 1996 can prevent certain pre-termination negotiations from being used as evidence in an ordinary unfair dismissal claim, even where there was no existing dispute beforehand.
However, the protection has limitations and does not mean every settlement discussion is automatically protected in every type of claim.
No. Section 111A does not provide blanket protection against all claims. For example, it does not apply to discrimination claims, and improper behaviour during negotiations can also affect whether discussions remain protected.
The separate without-prejudice principle can apply where there is already an existing dispute and the communication is a genuine attempt to settle it. Employers should therefore be careful about assuming that simply calling a conversation “off the record” makes it confidential.
The employee should be given a reasonable period to consider the formal written proposal and obtain independent advice.
The Acas Code recommends, as a general rule, allowing at least 10 calendar days, unless the parties agree otherwise. The circumstances may require longer — for example, where a reasonable adjustment is needed.
For a settlement agreement to be legally valid in relation to the relevant statutory claims, the employee must receive advice from an appropriate independent adviser about the terms and effect of the agreement and its impact on their ability to pursue those claims.
That adviser might be a qualified lawyer or another category of authorised independent adviser permitted by law. The adviser must also meet the relevant insurance requirements and be identified in the agreement.
There is no general legal requirement for the employer to pay the employee's independent-advice costs. However, employers commonly offer a contribution towards those costs to help the employee obtain the advice required for the agreement to be completed.
The amount and scope of any contribution should be made clear as part of the proposed terms.
A settlement agreement can sometimes provide an alternative agreed route to termination and can be proposed before another formal process has been completed.
However, the employee is free to decline. Employers should therefore avoid treating a settlement proposal as a substitute for considering what fair and lawful process may be required if no agreement is reached. Acas specifically advises that settlement discussions should not improperly affect an underlying performance or disciplinary procedure.
Employment does not automatically end merely because an offer has been rejected.
The employer should reassess the position and decide what happens next. Depending on the circumstances, that might mean continuing the employment relationship, resuming an appropriate performance or disciplinary process, addressing the underlying workplace issue or considering another lawful route.
A valid settlement agreement can prevent the employee from pursuing the particular claims covered by the agreement.
It is not sufficient simply to state that the agreement settles “all claims”. The relevant claims need to be properly identified and the statutory requirements for a valid settlement agreement must be met.
Not necessarily.
Some qualifying termination payments can benefit from the £30,000 income-tax threshold, but normal earnings such as salary, holiday pay, bonuses and amounts treated as notice pay are generally taxable in the usual way. The tax treatment therefore depends on what each part of the payment represents.
Employers should not simply assume that the first £30,000 written into a settlement agreement can be paid tax-free. Current HMRC guidance also provides for employer Class 1A National Insurance on qualifying termination awards above the £30,000 threshold.
Potentially, but employers need to be careful about when and how they do so.
Before a binding agreement has been reached, an employer may be able to amend or withdraw an offer. However, imposing unreasonable deadlines or withdrawing an offer simply to pressure an employee into accepting quickly could amount to improper behaviour and affect the protection normally given to settlement discussions.
There are also differences between England and Wales and Scotland around when negotiations may become legally binding, so the status of an offer should be checked before withdrawing it where terms have already been agreed.
Yes. A dispute can still be resolved after Acas Early Conciliation has started or after an Employment Tribunal claim has been issued.
Where an agreement is reached through Acas conciliation, it will normally be recorded in a COT3 agreement rather than an ordinary settlement agreement. A COT3 is legally binding and can bring the relevant Tribunal proceedings to an end.
The decision to settle should still be based on the strength of the employer's position and the commercial value of resolving the dispute, rather than simply because proceedings have started.
Yes. An agreed employment reference can form part of the settlement terms.
Where a reference matters to the deal, it is sensible to agree the wording and include it with the settlement agreement so both parties know exactly what will be provided. The employer should then ensure future written or verbal references remain consistent with the wording agreed.
Whether you are thinking about approaching an employee, already negotiating terms or dealing with a dispute that may be capable of resolution, we can help you assess the position and decide what makes commercial sense.
We will look at the outcome you need, the realistic alternatives and the terms that matter — then help you negotiate and prepare the agreement required to bring the situation to a proper conclusion.
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