Atornee
Get Started Free
Generate Settlement Agreement Now

Lawyer reviewed templates

how to draft a employment settlement agreement uk

How to Draft a Settlement Agreement in the UK

If you need to know how to draft a employment settlement agreement uk, you are dealing with one of the more legally sensitive documents in employment law. A settlement agreement is a legally binding contract between an employer and employee that waives the employee's right to bring most employment tribunal claims in exchange for agreed terms, usually a financial payment. Under UK law, specifically the Employment Rights Act 1996 and the Equality Act 2010, a settlement agreement is only valid if it meets strict statutory conditions. The employee must receive independent legal advice from a qualified adviser, the agreement must be in writing, and it must identify the specific claims being waived. Getting any of these elements wrong means the agreement is unenforceable. This guide walks you through every clause you need, what the law requires, and where the common drafting mistakes happen. It is written for UK employers and founders who want to understand the process before instructing a solicitor or using a tool like Atornee to generate a compliant first draft.

Generate Settlement Agreement Now
Instant Access
Lawyer Reviewed

Why this matters

Most founders reach for a settlement agreement template online, fill in the blanks, and assume it will hold up. It often does not. The statutory requirements under UK employment law are specific and non-negotiable. Miss the independent legal advice condition and the entire agreement is void. Fail to list the exact tribunal claims being settled and you may find the employee can still bring those claims. Draft the confidentiality clause too broadly and it becomes unenforceable. The real problem is that settlement agreements look straightforward but carry significant legal risk if drafted carelessly. This page exists to close that knowledge gap before it costs you.

The Atornee approach

Atornee is not a law firm and does not replace a solicitor for complex or high-value settlement situations. What it does is generate a legally structured UK employment settlement agreement draft that covers the statutory requirements, flags the clauses you need to customise, and saves you the cost of starting from scratch with a solicitor. You get a working document built around UK employment law, not a generic template from a US legal site. For straightforward exits where the terms are already agreed, Atornee gets you to a reviewable draft in minutes. You still need the employee to take independent legal advice before signing. That part is non-negotiable.

What you get

A UK-compliant settlement agreement structure covering all statutory requirements under the Employment Rights Act 1996
Pre-drafted clauses for financial payment, confidentiality, reference wording, and waiver of tribunal claims
Clear flags on which clauses require customisation based on your specific situation
Guidance on the independent legal advice requirement so you understand what the employee must do before the agreement is valid
A document you can take to a solicitor for review rather than paying for drafting from scratch

Before you sign checklist

1
1. Agree the headline terms with the employee before drafting — payment amount, last working day, reference wording
2
2. Identify every employment tribunal claim that could realistically be brought and list them explicitly in the waiver clause
3
3. Confirm the employee will receive independent legal advice and factor in a contribution to their legal fees in the payment terms
4
4. Draft the confidentiality clause to cover business information and the terms of the agreement itself, but keep it proportionate
5
5. Include a clause confirming the employee has no outstanding grievances or claims beyond those listed
6
6. Check whether any post-termination restrictions such as non-compete or non-solicitation clauses need to be included or reaffirmed
7
7. Have the final draft reviewed by a UK employment solicitor before presenting it to the employee, particularly for payments above the tax-free threshold

FAQ

Does a settlement agreement have to be in writing in the UK?

Yes. Under UK employment law a settlement agreement must be in writing to be legally valid. An oral agreement to settle employment claims does not satisfy the statutory conditions and will not prevent an employee from bringing tribunal claims.

Does the employee have to get independent legal advice?

Yes, this is a hard legal requirement. The employee must receive advice from a relevant independent adviser, usually a qualified solicitor, before signing. Without this the agreement is unenforceable. Employers typically contribute to the cost of this advice, often between £250 and £500 plus VAT.

What claims can a settlement agreement cover?

Most statutory employment claims can be settled, including unfair dismissal, discrimination claims under the Equality Act 2010, wrongful dismissal, and claims for unpaid wages. The agreement must list the specific claims being waived. You cannot use a settlement agreement to waive future personal injury claims the employee is not yet aware of.

How much of a settlement payment is tax free?

The first £30,000 of a genuine termination payment is generally exempt from income tax and National Insurance under current HMRC rules. Payments above that threshold are taxable. Payments in lieu of notice are treated differently and are usually subject to tax and NI regardless of how they are structured. Check with a tax adviser for your specific situation.

Can I use a template settlement agreement or do I need a solicitor?

A template or AI-generated draft is a reasonable starting point for straightforward situations where terms are already agreed. However, for any settlement involving discrimination claims, whistleblowing, or payments above the tax-free threshold, you should have a UK employment solicitor review the document before it is presented to the employee. The cost of getting it wrong is higher than the cost of a review.

What happens if the settlement agreement is not properly drafted?

If the statutory conditions are not met the agreement is void and the employee can still bring tribunal claims as if no agreement existed. If specific claims are not listed they are not waived. If the confidentiality clause is unreasonably wide a court may strike it out. Poorly drafted agreements give employees grounds to challenge the settlement entirely.

Related Atornee Guides

Cheap Contract Solicitor Alternative (UK)

Useful if you want to understand broader options for managing employment contract costs alongside settlement drafting.

Cheap Solicitor for NDA (UK)

Settlement agreements often include confidentiality obligations — pair with NDA guidance when standalone confidentiality is also needed.

Atornee Use Cases

See how UK founders and HR teams use Atornee across different employment and contract document workflows.

External References

GOV.UK Business and Self-employed

Official UK government guidance on employment obligations and business operations.

UK Legislation

Primary statutory reference for the Employment Rights Act 1996 and Equality Act 2010, which govern settlement agreement validity.

ICO Guidance for Organisations

Relevant where settlement agreements include data protection clauses or involve handling of employee personal data.

Trust & Verification Policy

Authored By

A

Atornee Editorial Team

UK Employment Law Content Research

Reviewed By

C

Compliance Review Desk

UK Business Legal Content QA

Last reviewed on 3/4/2026

"This content is based on analysis of UK employment law statutory requirements and common drafting issues encountered in settlement agreement workflows. It reflects the practical questions UK founders and HR teams ask when handling employee exits."

References & Sources