A resignation letter, grievance, redundancy process or disciplinary meeting can quickly lead to a discussion about a negotiated exit. People often search for an ‘example settlement agreement workplace dispute’ document at this point, hoping to understand what they may be asked to sign. A settlement agreement can bring certainty and allow both sides to move forward, but it is a legally binding contract. The wording, payment breakdown and claims being waived all matter.
This practical guide explains the usual structure of a UK workplace settlement agreement and provides an illustrative example. It is not a substitute for independent legal advice. An agreement that appears straightforward may have significant implications for notice pay, future work, references, confidentiality and potential Employment Tribunal claims.
What a settlement agreement is designed to achieve
A settlement agreement is a formal contract between an employer and an employee or worker. Usually, the employer agrees to make a payment or provide another benefit, and the individual agrees not to bring specified legal claims arising from their employment or its termination.
They are frequently used where the employment relationship has broken down, following a grievance or capability process, during a restructure, or where both parties prefer an agreed departure to a prolonged dispute. They can also settle a dispute while employment continues, although this is less common.
A settlement agreement is different from an ACAS COT3 agreement. A COT3 is normally used when ACAS conciliation is involved, often after an Employment Tribunal claim has been started or notified. Both can settle employment claims, but their form and process differ.
For an agreement to validly waive most statutory employment claims, it must be in writing, identify the particular complaints being settled, and confirm that the individual has received advice from a relevant independent adviser. The adviser must be identified in the agreement and have appropriate professional indemnity insurance. A general statement that the employee waives all rights is unlikely to provide the certainty either side expects.
Example settlement agreement workplace dispute terms
The following is a simplified example of how key provisions may read. It is deliberately not a complete document. A suitable agreement must reflect the facts, the parties’ bargaining position and the particular claims at issue.
Parties and background
Employer: Northbridge Services Ltd
Employee: Aisha Khan
Background: Aisha raised a formal grievance concerning her manager’s conduct and alleges that she has been treated unfavourably after returning from maternity leave. The employer does not accept liability. The parties wish to resolve the matter without litigation.
This background section should be drafted carefully. It can provide useful context, but it should not contain unnecessary admissions or allegations. In some cases, the agreement will simply state that a dispute has arisen and that the parties wish to settle it confidentially.
Termination and notice
Termination date: Aisha’s employment will end by mutual agreement on 31 October 2026.
Notice: The employer will pay Aisha her contractual notice entitlement of £4,000 gross, subject to deductions for income tax and National Insurance contributions.
The agreement should be clear whether the employee will work their notice, be placed on garden leave or receive payment in lieu of notice. This affects tax treatment and may affect access to benefits, commission or bonus payments.
Payments
Termination payment: The employer will pay Aisha £12,000 as compensation for the termination of employment and the settlement of the claims listed below.
Accrued holiday: The employer will pay £850 gross in respect of untaken holiday accrued up to the termination date.
Legal fees: The employer will contribute up to £500 plus VAT towards the reasonable legal fees Aisha incurs in obtaining independent advice on this agreement. The payment will be made directly to her solicitor on receipt of an invoice.
Each payment should be separately stated. Salary, holiday pay, bonuses and notice pay will ordinarily be taxable. A qualifying termination payment may benefit from the £30,000 tax exemption, but the position depends on the facts and current tax rules. It is sensible to take advice rather than assume that the full settlement sum will be paid tax-free.
Claims being settled
Settled claims: In exchange for the payments above, Aisha agrees not to bring claims arising from her employment or its termination, including specified claims for unfair dismissal, breach of contract, unpaid wages, holiday pay, sex discrimination, pregnancy or maternity discrimination, harassment and victimisation.
The agreement should list the relevant statutory provisions and common law claims with enough precision to meet legal requirements. It should not use an indiscriminate list simply because it appears comprehensive. A claim that has no connection to the situation may create confusion, while a missing claim could undermine the employer’s intended protection.
Reference and communications
Reference: On request, the employer will provide the agreed factual reference set out in a schedule to the agreement, confirming Aisha’s job title and dates of employment.
Internal and external communications: The parties will describe the departure as a mutual agreement, unless legally required to say otherwise.
A reference is often a valuable part of the negotiation, particularly where the employee is concerned about finding another role. The wording should be attached to the agreement rather than left to future discussion. An employer may agree only to a basic factual reference, and that may still be preferable to uncertainty.
Confidentiality and protected disclosures
Confidentiality: Aisha will keep the terms and circumstances of the agreement confidential, except where disclosure is required by law or made to her spouse or civil partner, professional advisers, HM Revenue and Customs, a regulator, the police, or for the purpose of obtaining medical or therapeutic support.
Confidentiality clauses have limits. A settlement agreement cannot lawfully prevent someone from making a protected disclosure, reporting suspected crime, cooperating with a regulator or complying with a legal obligation. The agreement should make those exceptions clear. It should also avoid language that could be read as concealing discrimination, harassment or other serious wrongdoing.
Return of property and final practical matters
Company property: By the termination date, Aisha will return the employer’s laptop, access pass, documents and other company property. The employer will arrange the removal of her access to company systems.
Entire agreement: The agreement records the full terms agreed between the parties, except for rights that cannot lawfully be waived, such as accrued pension rights.
These clauses may seem routine, but they should reflect reality. For example, the agreement may need to address company equipment used for remote working, personal data held by the employee, share options, restrictive covenants or continuing private medical cover.
Negotiating a fair outcome
The value of a workplace settlement is not determined by a fixed formula. It depends on the strength and likely value of potential claims, the evidence available, the employee’s earnings and benefits, the cost and stress of litigation, and how quickly both parties want a resolution.
For an employee, the first figure proposed is not necessarily the final figure. Before responding, it is useful to identify what is being offered beyond contractual entitlements. Notice pay, wages and accrued holiday are often already due, so they should not automatically be treated as compensation for giving up claims. Consider the reference, timing of payment, treatment of bonus or commission, legal fees and wording around confidentiality as part of the overall package.
For an employer, a carefully prepared agreement can reduce risk and preserve business continuity. However, pressuring an employee to sign immediately, failing to allow a reasonable period to consider terms, or overlooking a live grievance can increase the risk of later dispute. The Acas Code recommends allowing at least 10 calendar days to consider a written settlement agreement and obtain advice, unless the parties agree otherwise.
Points that need particular care
Do not sign solely because an agreement says the employer will pay legal fees. The contribution may cover advice on the agreement itself but not wider advice on the merits of a claim or negotiations. Ask your adviser what work is included and whether additional fees may arise.
Check the claims clause against your actual concerns. If the dispute involves discrimination, whistleblowing, unpaid commission, sickness absence, redundancy selection or a breach of restrictive covenants, the drafting needs to deal with those issues properly. Future claims that have not arisen cannot always be waived simply by broad wording.
Read post-termination restrictions closely. A settlement agreement may restate non-compete, non-solicitation or confidentiality obligations in the employment contract. If you are planning to join a competitor or start a related business, this can be as significant as the payment itself.
Finally, ensure there is a clear payment date and a remedy if payment is late. An agreement should say when funds will be paid, whether payment depends on return of property, and what deductions will be made.
A well-drafted agreement should not leave either side guessing about what has been settled, what will be paid and what happens next. Independent employment law advice gives you the opportunity to test the wording, ask direct questions and make a decision with a clear view of the practical consequences.
