Settlement / Compromise Agreement (England & Wales)
Employment Rights Act 1996 s.203 — England & Wales
This Settlement Agreement (the “Agreement”) is made on [Agreement Date] between:
(1) [Employer Name], a company registered in England and Wales under number [Company Number], whose registered office is at [Employer Address] (the “Employer”); and
(2) [Employee Name] of [Employee Address] (the “Employee”).
RECITALS
A. The Employee has been employed by the Employer as [Job Title] since [Employment Start Date].
B. The parties have agreed to terminate the Employee’s employment on the Termination Date on the terms set out in this Agreement.
C. This Agreement is intended to be a legally binding compromise of any claims the Employee may have arising from or in connection with their employment and its termination, in accordance with section 203(2)(f) and (3) of the Employment Rights Act 1996 and the relevant provisions of the Equality Act 2010.
IT IS AGREED as follows:
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement:
“Termination Date” means [Termination Date], being the agreed last day of the Employee’s employment with the Employer.
“Settlement Sum” means the total gross sum of £[Settlement Amount] payable by the Employer to the Employee pursuant to clause 3 of this Agreement.
“Adviser” means [Adviser Name] of [Adviser Firm], [Adviser Address].
1.2 References to statutes include all statutory amendments and re-enactments in force at the date of this Agreement.
2. TERMINATION OF EMPLOYMENT
2.1 The Employee’s employment with the Employer shall terminate on the Termination Date ([Termination Date]) by mutual agreement.
2.2 From the date of this Agreement until the Termination Date, the Employer may, at its discretion, require the Employee not to attend the workplace, to cease performing their duties, and to remain away from the Employer’s premises (garden leave).
2.3 The Employee shall return all property belonging to the Employer on or before the Termination Date, including keys, access cards, laptops, mobile phones, documents, and any other materials. The Employee shall permanently delete all confidential information of the Employer from any personal devices.
3. SETTLEMENT PAYMENTS
3.1 In full and final settlement of all claims (known and unknown) the Employee may have against the Employer arising from or in connection with the Employee’s employment or its termination, the Employer shall pay the Employee the Settlement Sum of £[Settlement Amount] within [Payment Deadline Days] days of the later of (a) the date of this Agreement and (b) the Termination Date.
3.2 The Settlement Sum shall be paid by bank transfer to such account as the Employee notifies in writing to the Employer.
3.3 Tax treatment: The Employee acknowledges that payments under this Agreement will be subject to income tax and National Insurance contributions in accordance with the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA 2003”) as applicable. The first £30,000 of qualifying termination payments (excluding any contractual elements such as PILON, accrued holiday pay, or bonus) may be free from income tax under ITEPA 2003 s.403, subject to applicable limits and HMRC guidance. The Employer gives no warranty as to the tax treatment of any payment and the Employee is responsible for any tax liability arising.
3.4 The Employer shall pay the Employee’s reasonable legal costs of obtaining independent advice on this Agreement, up to a maximum of £[Legal Costs Contribution] plus VAT, directly to the Adviser’s firm upon receipt of their invoice. This contribution is made on the understanding that it is free from income tax as a disbursement for advice solely on this Agreement.
4. ACCRUED ENTITLEMENTS
4.1 The Employer shall pay the Employee all accrued but unpaid salary, accrued but untaken annual leave, and any contractual benefits (including accrued bonus if any) calculated to the Termination Date, less applicable tax and National Insurance, through the normal payroll on or before the next regular payroll date following the Termination Date.
4.2 The Employee’s accrued rights under any occupational pension scheme are not affected by this Agreement and shall be dealt with in accordance with the applicable pension scheme rules.
5. FULL AND FINAL SETTLEMENT — WAIVER OF CLAIMS
5.1 In consideration of the Settlement Sum, the Employee agrees to waive, settle, and compromise all claims, causes of action, and rights of action (whether known or unknown) which the Employee has or may have against the Employer, or any of the Employer’s officers, directors, employees, agents, or group companies, arising from or in connection with the Employee’s employment and/or its termination.
5.2 In particular, and without limiting the generality of clause 5.1, the Employee agrees to waive and compromise claims including: [Claims Waived].
5.3 The Employee confirms that they are not aware of any claims or potential claims arising from their employment that are not addressed by this Agreement.
5.4 Nothing in this Agreement shall prevent the Employee from:
- making a protected disclosure within the meaning of section 43B of the Employment Rights Act 1996 (whistleblowing);
- bringing a claim before the Employment Tribunal for enforcing the terms of this Agreement;
- reporting suspected wrongdoing or criminal activity to the police or any other relevant regulatory authority;
- making a complaint to the Information Commissioner's Office regarding data protection;
- bringing a claim in respect of accrued pension rights; or
- bringing a claim for personal injury that the Employee is not aware of at the date of this Agreement.
6. INDEPENDENT LEGAL ADVICE
6.1 The Employee confirms that, before signing this Agreement, they have received independent legal advice from [Adviser Name] of [Adviser Firm] (the “Adviser”) regarding the terms and effect of this Agreement, and in particular as to whether they have any claims against the Employer.
6.2 The Adviser has confirmed to the Employee in writing that:
- the Adviser is a relevant independent adviser for the purposes of section 203(3)(b) of the Employment Rights Act 1996 and any other applicable statutory provisions;
- the Adviser is not acting, and has not acted, in relation to this matter for the Employer;
- the Adviser is covered by a current contract of insurance, or professional indemnity insurance, in respect of the advice given on this Agreement; and
- the Adviser has advised the Employee as to whether they have any claims against the Employer.
6.3 This Agreement satisfies the conditions relating to compromise agreements set out in section 203(2)(f) and (3) of the Employment Rights Act 1996, section 147(3) of the Equality Act 2010, regulation 35 of the Working Time Regulations 1998, and all other relevant statutory provisions which require independent legal advice as a condition of a binding compromise.
7. POST-TERMINATION OBLIGATIONS
7.1 The Employee acknowledges and agrees to comply with all post-termination obligations that survive the Termination Date under the Employee’s contract of employment, including (without limitation) obligations not to solicit the Employer’s clients or employees for a specified period, not to compete with the Employer for a specified period (to the extent such covenants are reasonable and enforceable under English law), and to maintain confidentiality of trade secrets and genuinely confidential information.
7.2 The parties agree that the payment of the Settlement Sum includes consideration for the Employee’s compliance with post-termination restrictive covenants in the Employee’s contract of employment.
8. NON-DISPARAGEMENT
8.1 The Employee agrees not to make any statement, whether publicly or privately, that is disparaging, derogatory, or defamatory of the Employer, its products or services, or any of its officers, directors, or employees.
8.2 The Employer agrees not to make any statement that is disparaging or defamatory of the Employee.
8.3 Nothing in this clause 10 prevents either party from giving honest testimony if required by law or any court or regulatory body.
9. NO ADMISSION OF LIABILITY
9.1 This Agreement is entered into without any admission of liability on the part of the Employer. The Employer denies any wrongdoing in connection with the Employee’s employment and its termination. This Agreement cannot be used as evidence of any admission of liability or breach of law.
10. RETURN OF PROPERTY AND DATA
10.1 On or before the Termination Date, the Employee shall return all property belonging to the Employer in their possession or under their control, including but not limited to keys, access cards, computers, mobile phones, documents, and other materials.
10.2 The Employee shall not retain any copies of confidential business information belonging to the Employer and shall delete all such information from any personal devices or cloud storage within 7 days of the Termination Date.
11. THIRD PARTY RIGHTS
11.1 Except as expressly provided in this Agreement, a person who is not a party to this Agreement shall have no rights under or in connection with it by virtue of the Contracts (Rights of Third Parties) Act 1999.
11.2 The provisions of clause 5 (Waiver of Claims) are intended to benefit the Employer’s officers, directors, and employees in their individual capacity, and such persons may enforce those provisions under the Contracts (Rights of Third Parties) Act 1999.
12. GOVERNING LAW AND JURISDICTION
12.1 This Agreement and any dispute or claim arising out of or in connection with it shall be governed by and construed in accordance with the laws of England and Wales.
12.2 The parties irrevocably agree that the courts of England and Wales (including the Employment Tribunal) shall have exclusive jurisdiction to settle any dispute arising from this Agreement.
13. ENTIRE AGREEMENT AND VALIDITY
13.1 This Agreement constitutes the entire agreement between the parties in connection with the termination of the Employee’s employment and supersedes all prior negotiations, representations, and agreements.
13.2 The Employee confirms that they are not entering into this Agreement in reliance on any representation not recorded in this Agreement.
13.3 If any provision of this Agreement is held to be invalid or unenforceable, the remaining provisions shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Settlement Agreement on the date first written above.
SIGNED on behalf of the EMPLOYER
Company: [Employer Name]
Address: [Employer Address]
SIGNED by the EMPLOYEE
Name: [Employee Name]
Address: [Employee Address]
Job Title: [Job Title]
CERTIFICATE OF INDEPENDENT ADVISER
I, [Adviser Name], of [Adviser Firm], [Adviser Address], confirm that:
- I am a relevant independent adviser for the purposes of section 203(3)(b) of the Employment Rights Act 1996;
- I am not acting, and have not acted, in relation to this matter for the Employer;
- I am covered by professional indemnity insurance in respect of this advice; and
- I have given [Employee Name] independent legal advice on the terms and effect of this Agreement, and in particular as to whether they have any claims against the Employer.
ADVISER’S SIGNATURE
Name: [Adviser Name]
Firm: [Adviser Firm]
Address: [Adviser Address]
Employer (authorised signatory)
________________
Signature
Date: ________________
Employee
________________
Signature
Date: ________________
Independent Adviser
________________
Signature
Date: ________________
What Is a Settlement / Compromise Agreement (England & Wales)?
A Settlement / Compromise Agreement in the United Kingdom sets out a party's position in an employment dispute and the terms or evidence on which it relies, and is governed by the Employment Rights Act 1996.
The legal framework governing settlement agreements is primarily set out in section 203 of the Employment Rights Act 1996 (ERA 1996), which provides that an agreement can only exclude or limit an employee's statutory rights (such as the right to bring an unfair dismissal claim) if certain conditions are met. The equivalent provisions for other statutory claims are found in section 147 of the Equality Act 2010 (for discrimination claims), regulation 35 of the Working Time Regulations 1998 (for holiday pay claims), section 49 of the National Minimum Wage Act 1998, and various other statutes. Without satisfying these conditions, a settlement agreement is ineffective to compromise statutory employment rights regardless of what it says.
The most critical condition is the requirement for the employee to receive independent legal advice from a 'relevant independent adviser' — defined in s.203(3)(b) to include a qualified solicitor or barrister, a Fellow of the Institute of Legal Executives, a certified trade union official, or a certified advice centre worker. The adviser must be independent of the employer and must hold current professional indemnity insurance. This requirement exists to confirm that employees are not pressured into signing away their statutory rights without fully understanding the consequences.
The United Kingdom Settlement / Compromise Agreement (England & Wales) template creates a thorough settlement agreement suitable for use in England and Wales covering all principal statutory claims (unfair dismissal, wrongful dismissal, discrimination, holiday pay, redundancy pay, and others), includes the mandatory independent legal advice certificate, addresses the complex tax treatment of settlement payments under the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), and provides optional provisions for confidentiality, agreed reference, and post-termination obligations.
The legal framework governing the Settlement / Compromise Agreement (England & Wales) in United Kingdom draws on several key statutes and regulatory bodies. Under the Employment Rights Act 1996, the Employment Tribunal adjudicates workplace disputes. Section 94 of the Employment Rights Act 1996 provides the right not to be unfairly dismissed. The Advisory, Conciliation and Arbitration Service (ACAS) provides early conciliation under Section 18A of the Employment Tribunals Act 1996. The UK GDPR and Data Protection Act 2018 govern personal data handling. HM Revenue and Customs (HMRC) administers PAYE and National Insurance contributions under the Income Tax (Earnings and Pensions) Act 2003. Parties executing a Settlement / Compromise Agreement (England & Wales) in United Kingdom should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Employment Rights Act 1996 sets the foundational requirements.
When Do You Need a Settlement / Compromise Agreement (England & Wales)?
A Settlement Agreement is needed in any situation where an employer and employee are terminating the employment relationship and the employer wants legal certainty that the employee cannot subsequently bring employment tribunal claims. The most common scenarios include: redundancy situations where the employer wants to resolve the matter quickly and cleanly without the risk of unfair dismissal claims; performance management situations where the employer has concerns about the employee's performance and wishes to agree a mutual exit rather than go through a potentially protracted performance improvement process; disciplinary situations where the employer has concerns about the employee's conduct and wants to resolve matters commercially rather than through a formal hearing; restructuring exercises where multiple positions are being eliminated and individual negotiations produce different settlement outcomes; and disputes where the employee has already raised a grievance or indicated an intention to bring tribunal claims.
Settlement agreements are also commonly used where there is a breakdown in the working relationship between an employer and a senior employee (particularly at director level), where the continuation of employment is not practicable but there is no clear conduct or performance basis for dismissal, and where a negotiated exit is in both parties' interests. In such cases, the settlement agreement may provide not only financial compensation but also positive obligations on the employer — such as an agreed reference, a positive announcement to colleagues, and a waiver of post-employment notice obligations.
Section 111A of the ERA 1996 (inserted by the Enterprise and Regulatory Reform Act 2013) allows employers to have 'protected conversations' with employees about a potential exit, provided the discussion is genuinely without prejudice and there is no improper behaviour. Offers made in protected conversation cannot be referred to in subsequent unfair dismissal proceedings, giving employers some protection when raising the prospect of a settlement agreement. However, protected conversation protection does not apply to discrimination claims, so care must be taken where discrimination issues may be relevant.
What to Include in Your Settlement / Compromise Agreement (England & Wales)
A legally effective Settlement Agreement for use in England and Wales must contain the following key elements:
Statutory Compliance Certificate — The agreement must state that the conditions of section 203(2)(f) and (3) of the ERA 1996 (and equivalent provisions of the Equality Act 2010 and other statutes) are satisfied. Without this, the agreement cannot effectively waive statutory employment claims.
Specific Identification of Claims — Unlike a general release in a commercial contract, a settlement agreement must specifically identify the statutory rights being waived. A generic 'all claims' waiver is insufficient. The agreement should list each relevant statutory right and claim by name and statutory reference (e.g. unfair dismissal under ss.94–134A ERA 1996, discrimination under the Equality Act 2010). This template provides a thorough list of the most common employment claims.
Independent Legal Advice Certificate — A separate certificate (set out at the end of the agreement) must be signed by the independent adviser confirming that they have given advice on the terms and effect of the agreement and that the statutory conditions are satisfied. The certificate should also confirm that the adviser holds current professional indemnity insurance and is not acting for the employer.
Settlement Payment and Tax Apportionment — The agreement must clearly specify the total settlement sum and how it is broken down between (a) contractual elements (salary, holiday pay, bonus) which are always taxable as earnings, (b) payment in lieu of notice (PILON) which is taxable in full following the Finance Act 2018 post-employment notice pay rules, and (c) non-contractual ex gratia compensation which may benefit from the £30,000 income tax exemption under s.403 ITEPA 2003. Failure to apportion the payment correctly can result in unexpected tax liabilities for the employer and employee.
Contribution to Legal Costs — It is standard practice for the employer to pay a contribution toward the employee's legal costs of taking independent advice on the settlement agreement. This contribution is itself free from income tax as a disbursement made solely for the purpose of taking advice on the agreement.
Whistleblowing and Protected Disclosure Carve-Out — Any confidentiality clause must expressly carve out the employee's statutory right to make a protected disclosure under ERA 1996 s.43B and to report suspected criminal activity or regulatory breaches to the relevant authorities. A confidentiality clause that attempts to suppress protected disclosures is void under ERA 1996 s.43J.
Post-Termination Obligations — The agreement should address the employee's continuing post-termination obligations, including any restrictive covenants in the employment contract, and confirm that the settlement payment represents consideration for compliance with those obligations.
Return of Property and Data — The agreement should require the employee to return all company property and delete all confidential company information from personal devices by the termination date, to comply with the employer's obligations under the UK GDPR and Data Protection Act 2018.
Governing Law — The agreement must state that it is governed by the laws of England and Wales and that any disputes are subject to the exclusive jurisdiction of the courts of England and Wales (including the Employment Tribunal). The forms-legal.com Settlement / Compromise Agreement (England & Wales) template covers the mandatory elements under Employment Rights Act 1996.
Sources & Citations
Statutory citations link to official government sources.
- ERA 1996 s.43BUK official
- ERA 1996 s.43JUK official
Cite this page
Reference this free template in an article, syllabus, or research note:
Forms Legal. (2026). Settlement / Compromise Agreement (England & Wales) (United Kingdom) [Legal document template]. Forms Legal. https://forms-legal.com/uk/employment/termination/settlement-compromise-agreement-england-wales
"Settlement / Compromise Agreement (England & Wales) (United Kingdom)." Forms Legal, 2026, https://forms-legal.com/uk/employment/termination/settlement-compromise-agreement-england-wales.
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}Frequently Asked Questions
A settlement agreement (formerly known as a compromise agreement) is legally binding in England and Wales only if it satisfies the conditions set out in section 203(2)(f) and section 203(3) of the Employment Rights Act 1996 (and equivalent provisions in the Equality Act 2010, Working Time Regulations 1998, and other employment legislation). The statutory conditions are: (1) the agreement must be in writing; (2) it must relate to a particular complaint or particular proceedings; (3) the employee must have received advice from a relevant independent adviser — a qualified solicitor, barrister, or certified trade union or advice centre worker — about the terms and effect of the agreement; (4) the adviser must have a current contract of insurance or professional indemnity insurance in respect of the advice; (5) the agreement must identify the adviser; and (6) the agreement must state that the applicable statutory conditions are satisfied. Failure to satisfy any of these conditions means that the agreement is not effective to exclude the employee's statutory claims.
Not always. Under sections 401 to 403 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), a 'termination award' that is not otherwise chargeable as employment income may benefit from a £30,000 income tax exemption. However, certain elements of a settlement payment are always taxable regardless of this threshold. These include: any payment in lieu of notice (PILON) — following the Finance Act 2018 post-employment notice pay (PENP) rules, all PILON is taxable as earnings and subject to PAYE and National Insurance from 6 April 2018; accrued but unpaid salary; accrued holiday pay; any contractual bonus; and any payment that represents a reward for services. Only genuinely non-contractual compensation for loss of employment (an 'ex gratia' element) can benefit from the £30,000 exemption under s.403 ITEPA 2003. The employer has a statutory obligation to deduct income tax and National Insurance through PAYE on all taxable elements. Both parties are strongly advised to take specialist tax advice on the structuring of settlement payments.
No. A settlement agreement cannot legally prevent an employee from making a protected disclosure within the meaning of section 43B of the Employment Rights Act 1996 (the whistleblowing legislation). Section 43J of the ERA 1996 expressly provides that any provision in an agreement that purports to prevent a qualifying protected disclosure is void. Similarly, a settlement agreement cannot prevent an employee from reporting suspected criminal activity or regulatory breaches to the relevant authorities (the police, FCA, HMRC, HSE, etc.), making a complaint to the Information Commissioner's Office about data protection, or reporting illegal acts to any relevant regulatory body. The confidentiality clause in any well-drafted settlement agreement must therefore include a carve-out for these matters. Failure to include this carve-out does not make the entire agreement void but makes the confidentiality provision unenforceable to the extent that it purports to restrict protected disclosures.
A settlement agreement (formerly a compromise agreement) is a directly negotiated written contract between the employer and employee, governed by ERA 1996 s.203 and signed before or after an employment tribunal claim is lodged. It requires the employee to have independent legal advice and must satisfy the s.203(3) conditions to compromise statutory claims. An ACAS COT3 is a settlement recorded on a form produced by the Advisory, Conciliation and Arbitration Service (ACAS) following a conciliation process under sections 18 to 18C of the Employment Tribunals Act 1996. A COT3 is reached through ACAS Early Conciliation and does not require the employee to have independent legal advice. However, a COT3 can only be reached through ACAS and requires ACAS's involvement; it is common in tribunal proceedings. A settlement agreement can be used pre-tribunal and gives more flexibility over the terms, including non-disclosure agreements and agreed references, which are not typically included in a COT3.
No. An employee has no legal obligation to sign a settlement agreement. ACAS guidance (the Code of Practice on Settlement Agreements under section 111A of the Employment Rights Act 1996) recommends that the employer give the employee a minimum of 10 calendar days to consider the proposed terms before requiring a response. The employee should take independent legal advice before deciding whether to sign. If the employee does not sign, the 'without prejudice' nature of any pre-agreement negotiations generally means that the discussions cannot be referred to in any subsequent employment tribunal proceedings (subject to the rule in Unilever plc v Procter & Gamble Co [2001] 1 All ER 783 and the statutory protected conversation provisions of ERA 1996 s.111A). An employee who refuses to sign a settlement agreement may face dismissal through other means (redundancy, capability, or conduct proceedings) if the employer decides to proceed.
Yes, but their enforceability depends on whether they are reasonable. Under English common law, a restrictive covenant in an employment contract (non-compete, non-solicitation, non-dealing) is only enforceable to the extent it protects a legitimate business interest and goes no further than is reasonably necessary to protect that interest (Tillman v Egon Zehnder Ltd [2019] UKSC 32). When new or extended post-termination restrictions are included in a settlement agreement, the courts treat them as if they were included in a new agreement — consideration (usually the settlement payment) must be provided. Restrictions that were in the original employment contract and are being confirmed in the settlement agreement are also reinforced by the settlement payment as fresh consideration. Courts are more likely to enforce restrictions in settlement agreements where the employee has received independent legal advice and the restrictions are time-limited, geographically reasonable, and tailored to protect a specific business interest.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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