Settlement Agreement — Acas (UK)
Legally binding resolution of employment dispute under ERA 1996 s.203
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT is made on [Agreement Date]
BETWEEN:
[Employer Name] (Company No. [Company Number]) whose registered office is at [Employer Address] (the "Employer"); and
[Employee Name] of [Employee Address] (the "Employee").
TOGETHER referred to as "the Parties".
BACKGROUND
The Employee has been employed by the Employer as [Job Title]. The Parties have entered into negotiations with a view to terminating the employment relationship on agreed terms. The Parties now wish to record the terms of their agreement in this document.
The circumstances being settled are: [Claims Description]
1. TERMINATION OF EMPLOYMENT
The Employee's employment with the Employer will terminate on [Termination Date] (the "Termination Date").
Notice arrangement: [Notice Arrangement].
The Employee will receive payment for all accrued but untaken holiday entitlement as at the Termination Date in the sum of £[Holiday Pay], which is subject to income tax and National Insurance deductions.
2. PAYMENT IN LIEU OF NOTICE
The Employer will pay to the Employee a payment in lieu of notice in the sum of £[PILON Amount] (subject to income tax and National Insurance contributions) in accordance with the terms of this Agreement.
3. SETTLEMENT PAYMENT
In full and final settlement of the claims listed in clause 5 below, and in consideration of the Employee entering into this Agreement, the Employer agrees to pay to the Employee an ex gratia sum of £[Ex Gratia Payment] (the "Settlement Payment").
The Settlement Payment will be paid on [Payment Date] by bank transfer to the Employee's nominated bank account.
The Parties agree that the Settlement Payment is an ex gratia payment and does not constitute a contractual entitlement. The first £30,000 of combined termination payments is expected to be free of income tax and National Insurance contributions pursuant to Sections 401-404 of the Income Tax (Earnings and Pensions) Act 2003, subject to the Employee's individual circumstances. Any amount in excess of £30,000 will be subject to income tax deductions under PAYE.
The Employer will pay the Employee's solicitor's costs in respect of advice on this Agreement in the sum of £[Legal Costs Contribution] (plus VAT if applicable), payable directly to [Adviser Firm] within 14 days of the date of this Agreement.
4. WAIVER OF CLAIMS
In consideration of the payments set out in this Agreement, the Employee agrees to waive and release the Employer from all and any claims, rights, and causes of action, whether arising under statute or common law, including but not limited to: unfair dismissal under Section 94 of the Employment Rights Act 1996 (waiver included: [Unfair Dismissal Waiver]); wrongful dismissal and breach of contract; claims under the Equality Act 2010 including discrimination, harassment, and victimisation on grounds of age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation (waiver included: [Discrimination Waiver]); statutory redundancy pay under Section 135 of the Employment Rights Act 1996; claims under the Working Time Regulations 1998; unlawful deduction of wages under Part II of the Employment Rights Act 1996; and all other claims arising from or in connection with the Employee's employment or its termination.
The Employee warrants that they are not aware of any personal injury claim arising from their employment and that they have not presented and will not present any claim to an Employment Tribunal or court in relation to the matters specified in clause 4.1.
Nothing in this Agreement prevents the Employee from making a protected disclosure within the meaning of the Public Interest Disclosure Act 1998, reporting a criminal offence to a law enforcement body, or exercising rights that cannot lawfully be waived.
5. REFERENCE
The Employer agrees that, upon request from a prospective employer, it will provide a reference for the Employee in the following terms: [Reference Wording]
The Employer will not provide any written or oral reference that is materially inconsistent with the agreed reference wording set out in clause 5.1.
6. CONFIDENTIALITY
The Employee agrees to keep strictly confidential the existence and terms of this Agreement and, to the extent specified ([Confidentiality Scope]), the circumstances of their departure from employment.
The obligation in clause 6.1 does not prevent disclosure to the Employee's immediate family, legal adviser, financial adviser, or HMRC where disclosure is necessary for tax purposes.
Nothing in this clause prevents either party from making a protected disclosure or from reporting a criminal offence to a law enforcement or regulatory body.
7. GOVERNING LAW AND STATUTORY CONDITIONS
This Agreement is governed by and construed in accordance with the laws of England and Wales.
The Parties confirm that this Agreement satisfies the conditions in Section 203(3) of the Employment Rights Act 1996 and the equivalent provisions in Section 288 of the Trade Union and Labour Relations (Consolidation) Act 1992, Section 49 of the National Minimum Wage Act 1998, Regulation 35 of the Working Time Regulations 1998, and Section 144 of the Equality Act 2010.
INDEPENDENT LEGAL ADVISER'S CERTIFICATE
I, [Adviser Name], of [Adviser Firm], [Adviser Address], being a [Adviser Qualification], confirm that:
I have given the Employee independent legal advice as to the terms and effect of this Agreement and, in particular, its effect on the Employee's ability to pursue the complaints specified in clause 4.1 before an Employment Tribunal or court;
I am not acting and have not acted in this matter for the Employer;
At the time the advice was given there was in force a policy of professional indemnity insurance or employer's indemnity insurance covering the risk of a claim by the Employee in respect of the advice I have given, provided by [Insurer Name].
Signed by [Adviser Name] on behalf of [Adviser Firm]
For and on behalf of the Employer
________________
Signature
Employee
________________
Signature
Independent Legal Adviser
________________
Signature
What Is a Settlement Agreement — Acas (UK)?
A Settlement Agreement — Acas in the United Kingdom sets out a party's position in an employment dispute and the terms or evidence on which it relies, and takes its legal force from the Employment Rights Act 1996.
The legal basis for settlement agreements in England and Wales is found in Section 203 of the Employment Rights Act 1996 (ERA 1996), which provides that statutory employment rights cannot generally be contracted out of by agreement — but creates an exception for settlement agreements that comply with the strict statutory requirements set out in the Act. Similar provisions exist in other employment statutes, including Section 288 of the Trade Union and Labour Relations (Consolidation) Act 1992, Section 49 of the National Minimum Wage Act 1998, and Section 144 of the Equality Act 2010.
The most important requirement for a valid settlement agreement is that the employee must have received independent legal advice from a relevant independent adviser — typically a solicitor — before signing. The purpose of this requirement is to confirm that the employee fully understands the rights they are giving up. The adviser must sign a certificate confirming that they have provided the required advice. Without a signed adviser's certificate, the agreement is void insofar as it purports to exclude statutory rights.
Settlement agreements are used in a wide range of employment situations in England and Wales, including: the termination of employment by reason of redundancy where the employer wishes to offer an enhanced package above the statutory minimum; the resolution of a grievance or disciplinary matter without proceeding to a formal hearing; the settlement of an existing Employment Tribunal claim; the agreed departure of a senior employee on a 'without prejudice' basis; and the management exit of an employee whose performance or conduct is not meeting expectations but where a formal process would be time-consuming or commercially sensitive.
The ACAS Code of Practice on Settlement Agreements and Section 111A of the ERA 1996 provide additional protection for pre-termination negotiations. Under s.111A, offers and discussions made with a view to terminating employment on agreed terms are inadmissible in any subsequent unfair dismissal proceedings, provided the employer has not acted improperly. This allows employers to have frank conversations about the possibility of a settlement without those conversations being used against them in Tribunal proceedings.
The legal framework governing the Settlement Agreement (UK) 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 Agreement (UK) 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 Agreement — Acas (UK)?
A settlement agreement is needed whenever an employer and employee in England and Wales wish to resolve a potential or actual employment dispute, or to bring an employment relationship to an end on terms that are agreed between the parties and that are intended to be legally final and binding.
The most common circumstances in which a settlement agreement is used in England and Wales include: redundancy situations where the employer wishes to offer the employee an enhanced redundancy payment above the statutory minimum and to obtain a clean waiver of all potential claims arising from the redundancy; grievance or disciplinary situations where a formal process is ongoing but both parties would prefer to resolve the matter by agreement rather than proceeding to a formal hearing; the managed departure of an underperforming employee where a formal performance improvement plan has not achieved the desired results; the resolution of a discrimination or harassment complaint that the employer considers would be best resolved by agreement; and the departure of a senior executive or director whose employment is being terminated on negotiated commercial terms.
A settlement agreement should be used before any Employment Tribunal proceedings are issued, or during those proceedings at any stage up to the final hearing. Where Tribunal proceedings have been issued, the settlement may be recorded in a COT3 form (brokered by ACAS) or in a settlement agreement signed by the parties. Where the settlement involves Tribunal proceedings, the Tribunal must be notified so that the claim can be withdrawn or dismissed.
Before approaching an employee with a settlement proposal, the employer should take legal advice. The ACAS Code of Practice recommends that the employer provide the employee with a minimum of 10 calendar days to consider the offer and to seek independent legal advice before being required to respond. It is also good practice for the employer to make a contribution to the employee's legal costs, as the requirement to obtain independent legal advice is a statutory condition for the agreement to be valid — a contribution of between £500 and £1,000 plus VAT is typical for a straightforward case.
What to Include in Your Settlement Agreement — Acas (UK)
A valid settlement agreement under Section 203 of the Employment Rights Act 1996 must contain several key elements to be legally effective.
First, the parties to the agreement must be clearly identified. The agreement should state the full legal names of the employer (including the registered company name and company number if applicable) and the employee, the nature of the employment relationship, and the employee's job title and place of work.
Second, the agreement must set out the termination terms, including the termination date, the notice period being given (or payment in lieu thereof), and the last day of employment. Where the employee is working their notice period, the agreement should specify any conditions that apply during the notice period.
Third, the financial terms of the settlement must be clearly stated. These will typically include the settlement payment itself — split between the taxable element (e.g. pay in lieu of notice, accrued holiday pay, any contractual bonus) and the ex gratia element (which benefits from the £30,000 tax exemption under ITEPA 2003). The agreement should also specify when each element of the payment will be made.
Fourth, the agreement must contain a clear list of the statutory claims being waived. Each specific statutory right must be identified by name and, ideally, by reference to the relevant statute. A non-exhaustive list might include: unfair dismissal (ERA 1996 s.94), wrongful dismissal, statutory redundancy pay (ERA 1996 s.135), claims under the Working Time Regulations 1998, claims under the Equality Act 2010 (specifying each protected characteristic), unlawful deduction of wages (ERA 1996 Part II), and breach of contract claims.
Fifth, the agreement must contain the independent legal adviser's certificate confirming that the adviser has advised the employee as to the terms and effect of the agreement. The adviser's name, qualification, address, and the name of their professional indemnity insurer must be stated.
Sixth, confidentiality provisions, non-disparagement clauses, and any agreed reference wording should be included where applicable. The confidentiality clause must not prevent the employee from making protected disclosures or reporting criminal conduct to a law enforcement body.
Finally, the governing law and jurisdiction (England and Wales) should be specified, and the agreement should include a warranty by the employee that they have not already presented any claim to an Employment Tribunal in respect of the matters being settled.
Additional compliance elements for a Settlement Agreement (UK) used in United Kingdom include: 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. Forms-legal.com provides this template as a starting point for United Kingdom-compliant documentation.
Sources & Citations
Statutory citations link to official government sources.
- ERA 1996 s.94UK official
- ERA 1996 s.135UK official
Cite this page
Reference this free template in an article, syllabus, or research note:
Forms Legal. (2026). Settlement Agreement — Acas (UK) (United Kingdom) [Legal document template]. Forms Legal. https://forms-legal.com/uk/employment/termination/uk-settlement-agreement-acas
"Settlement Agreement — Acas (UK) (United Kingdom)." Forms Legal, 2026, https://forms-legal.com/uk/employment/termination/uk-settlement-agreement-acas.
@misc{formslegal-uk-settlement-agreement-acas,
author = {{Forms Legal}},
title = {Settlement Agreement — Acas (UK) (United Kingdom)},
year = {2026},
howpublished = {\url{https://forms-legal.com/uk/employment/termination/uk-settlement-agreement-acas}},
note = {Free legal document template. Based on Employment Rights Act 1996}
}Frequently Asked Questions
For a settlement agreement to be valid and legally binding under Section 203 of the Employment Rights Act 1996, it must satisfy several strict statutory conditions. First, the agreement must be in writing. Second, it must relate to a particular complaint or particular proceedings — a 'blanket' waiver of all possible claims is not permitted; instead, the specific statutory rights being waived must be identified. Third, the employee must have received advice from a relevant independent adviser — typically a qualified solicitor — as to the terms and effect of the agreement and, in particular, its effect on the employee's ability to pursue the specified complaints before an Employment Tribunal. Fourth, the adviser must be covered by a professional indemnity insurance policy or an employer's indemnity policy in respect of the advice given. Fifth, the agreement must identify the adviser and include a certificate signed by the adviser confirming that the statutory conditions have been met. Where any of these conditions is not satisfied, the purported settlement agreement will be void insofar as it purports to exclude or limit statutory employment rights, and the employee may still bring a claim before an Employment Tribunal notwithstanding having signed the agreement.
A settlement agreement can waive a wide range of employment law claims, including unfair dismissal (ERA 1996 s.94), wrongful dismissal, breach of contract, statutory redundancy pay (ERA 1996 s.135), discrimination claims under the Equality Act 2010 (on grounds of age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation), claims under the Working Time Regulations 1998, unlawful deduction of wages claims under ERA 1996 Part II, and claims under the National Minimum Wage Act 1998. However, certain rights cannot be waived by a settlement agreement. These include claims for personal injury of which the employee is not aware at the date of the agreement, accrued pension rights, claims arising after the date of the agreement, and protected disclosure (whistleblowing) claims under the Public Interest Disclosure Act 1998 — although the practical enforceability of PIDA waivers is complex and contested in the case law. The agreement must also not contain a non-disparagement clause that would prevent the employee from making a protected disclosure.
The tax treatment of payments made under a settlement agreement in England and Wales depends on the nature of the payment. Payments that represent wages or salary to which the employee was contractually entitled — including notice pay, accrued holiday pay, and bonus — are subject to income tax and National Insurance contributions (NICs) in the usual way under PAYE. Since 6 April 2018, all payments in lieu of notice (PILONs) are subject to income tax and NICs regardless of whether the employment contract contained an express PILON clause, under the Finance (No.2) Act 2017. A termination payment that is genuinely ex gratia (i.e. not a payment to which the employee was contractually entitled) benefits from an exemption from income tax and NICs up to a combined total of £30,000 under Sections 401-404 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). Any ex gratia payment exceeding £30,000 is subject to income tax (but not, since April 2020, to employee NICs on the excess). Employer NICs are charged on ex gratia payments above £30,000 since April 2020. It is strongly recommended that both parties agree on the apportionment of the settlement sum between taxable and exempt elements, and that this is accurately reflected in the settlement agreement.
The ACAS Code of Practice on Settlement Agreements (under s.111A ERA 1996) provides guidance on the use of 'pre-termination negotiations' and settlement agreements. The Code establishes that settlement agreement discussions held under s.111A are inadmissible in unfair dismissal proceedings before an Employment Tribunal — commonly referred to as 'without prejudice' protection. The Code recommends that employees be given a minimum of 10 calendar days to consider a settlement proposal before being required to respond, and that they be permitted to be accompanied by a trade union official or work colleague at any settlement meeting. Following the Code does not guarantee protection if the employer acts improperly — for example, by exerting undue pressure on the employee to sign — as such conduct may be treated as improper and render the s.111A protection ineffective. The Code does not apply in cases involving automatic unfair dismissal (e.g. whistleblowing, family rights), discrimination, or unlawful deduction claims, where the ordinary 'without prejudice' common law rule applies instead.
Yes — confidentiality clauses (sometimes called 'non-disclosure agreements' or NDAs) are a common feature of settlement agreements in England and Wales. A typical confidentiality clause will require the employee to keep the existence and terms of the settlement agreement confidential, and may also require the employee not to make disparaging statements about the employer. However, confidentiality clauses in settlement agreements are subject to important limitations. They must not prevent the employee from making a protected disclosure under the Public Interest Disclosure Act 1998 (whistleblowing). They must not prevent the employee from disclosing information to specified persons — typically their immediate family, legal adviser, financial adviser, or HMRC — and these carve-outs should be expressly included in the agreement. Following the #MeToo movement and subsequent regulatory guidance, confidentiality clauses must not prevent the employee from reporting a criminal offence to a law enforcement body, or disclosing information in connection with a health and safety matter. The employer should bear in mind that a settlement agreement cannot prevent the employee from making future disclosures to regulators or law enforcement bodies, regardless of what the agreement says.
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
Found an error? Let us knowRelated Documents
You may also find these documents useful:
Redundancy Notice (UK)
Issue a detailed statutory redundancy notice to an employee in England and Wales under the Employment Rights Act 1996 ss.135–165 and the Trade Union and Labour Relations (Consolidation) Act 1992 ss.188–198. This template covers the statutory redundancy pay calculation, individual and collective consultation requirements, fair selection criteria, suitable alternative employment, statutory time off for job searching (ERA 1996 s.52), notice period, and the right of appeal — suitable for both small and large-scale redundancy exercises.
Termination Letter (England & Wales)
Terminate an employee's contract of employment in England and Wales in compliance with the Employment Rights Act 1996 and the ACAS Code of Practice. Our template covers the five potentially fair reasons for dismissal under s.98 ERA 1996, statutory and contractual notice periods, payment in lieu of notice, outstanding payments, return of property, post-termination restrictions, and the right of appeal. Download as PDF or Word.
Employment Contract (England & Wales)
Hiring someone in England or Wales? You are legally required to give them a written statement of employment particulars on or before their first day of work. Our UK Employment Contract template meets all requirements of the Employment Rights Act 1996 and covers working hours, salary, holiday entitlement, notice periods, pension auto-enrolment, confidentiality, and optional restrictive covenants. Download as PDF or Word in minutes.
Grievance Letter (UK)
Raise a formal workplace grievance in England and Wales in compliance with the ACAS Code of Practice on Disciplinary and Grievance Procedures and the Employment Rights Act 1996. This template covers the statutory right to be accompanied under the Employment Relations Act 1999 s.10, the requirement to set out the grievance clearly, and the right to appeal — protecting your legal position should the matter proceed to an Employment Tribunal.
Employee Warning Letter (UK)
Issue a formal written warning to an employee in England and Wales in compliance with the ACAS Code of Practice and the Employment Rights Act 1996. Whether you are issuing a First Written Warning or a Final Written Warning following a disciplinary hearing, this template guides you through every required element — from stating the grounds for the warning to informing the employee of their right to appeal.