Settlement Agreement negotiations: Guidance for Employers

What do employers need to consider when negotiating with employees?

The use of settlement agreements is becoming increasingly popular, this is largely due to the commercial benefits of entering into an agreement, as opposed to, risking costly litigation. However, whilst it is an attractive alternative, many employers do not know how to approach the subject or are concerned that such an offer, will damage the relationship beyond repair and result in a claim, should an offer be refused.

Any discussion with an employee regarding a settlement agreement should be made ‘without prejudice’, this means that the content of the discussion cannot be relied upon in any subsequent Employment Tribunal proceedings. This is on the basis that the discussion is a genuine attempt to resolve a dispute.

The Government introduced a new framework in July 2013, under section 111(A) of the Employment Rights Act 1996, which runs alongside the general ‘without prejudice’ rule.

Step by step guidance on the settlement negotiation process:

  1. Invite the Employee to a Meeting

I do not recommend that the employee is made aware that the purpose of the meeting is to discuss a possible settlement. However, it is likely the employee will question the purpose of the meeting, if you notify them of the meeting in advance. Therefore, you may consider not providing any notice of the meeting and merely calling them in to a discussion on the day.

Alternatively, if you do want to give notice of the meeting it would be appropriate to confirm that you have a concern regarding the employees, conduct, performance, or other genuine concern. Explain that the meeting is to discuss matters informally, ensuring the employee is not concerned that a formal process has been instigated. Further, ensure the meeting has been arranged at a mutually convenient time.

  1. The Meeting

During the meeting, you should confirm your concerns to the employee in a neutral manner and confirm the possible sanctions that may be imposed on the employee, if a formal process is commenced.

If you are making an offer to avoid a redundancy process, explain that the outcome of course is not a forgone conclusion, but if a formal process is followed it is likely they will be selected for redundancy. Explain that to avoid the process for all involved you wanted to give them the opportunity to leave by mutual agreement with an enhanced payment.

You should then explain that you would like to have a protected or without prejudice conversation, and ask if they would like to proceed. If they are, then explain the details of the offer. 

In concluding the meeting it is good practice to confirm that the settlement discussions are unable to be used in any proceedings that may be issued, and that it will have no bearing on any action taken by you in the future, if no agreement is reached.

  1. Written Offer

The employee should then be given written confirmation of your discussions and the offer, and if possible, a copy of the first draft  Settlement Agreement. However, judge whether it is appropriate to provide a draft agreement, in each case, as you do not want to give the employee the impression, you have already made a decision on the outcome of any action taken against the employee. Further, it is important to balance the need to inform the employee of the possible outcome of any formal process, without pressuring them into accepting the agreement.

It is good practice to give the employee 10 days to consider the offer, and to confirm that they are not required to attend work, but will be paid as normal, during this period.

You should review matters in every case, and ensure you make it clear that should the employee refuse to accept the agreement, it will have no impact upon the possible outcome of any redundancy, disciplinary or capability procedure.


Should you require any assistance, we provide full advice, including preparing scripts for without prejudice discussions.

Useful links for more information about Settlement Agreements:

Podcast: Settlement Agreements

Podcast: A speedy resolution to disputes and difficult situations with employees

Furlough Update and Settlement Agreements: Why they are a useful tool to resolve disputes

Settlement Agreement Legal Advice

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The information contained in this blog post is provided for guidance and is a snapshot of the law at the time it is written. It is provided for your information only and should not be used as a substitute for obtaining legal advice that it specific to your particular circumstances.

The guidance should not be relied upon in any decision making process. It is strongly recommended that you seek advice before taking action.

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