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Settlement agreement proposal letter

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Use this model settlement agreement proposal letter to enter discussions with an employee about ending their employment relationship.

This should only be used where there are previous or current disciplinary or performance management actions, i.e. there must be a dispute, or redundancy.

The letter includes the option of meeting with the employee to discuss the offer.

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10 mins
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What is a Settlement agreement proposal letter?

A settlement agreement proposal letter is a document that is sent by one party to another during a dispute or legal proceeding. The purpose of the letter is to propose a settlement agreement that would resolve the issues in the dispute without the need for further legal action.

The letter typically outlines the terms of the proposed settlement, including any financial compensation or other remedies that are being offered, as well as any conditions or requirements that would need to be met in order to finalize the settlement. The letter may also include a deadline for the other party to respond, and may indicate that the offer will be withdrawn if a response is not received by that date.

In addition to outlining the proposed terms of the settlement, the letter may also provide a brief overview of the issues in dispute and the reasons why the party is proposing the settlement. The tone of the letter is generally professional and respectful, and may express a desire to resolve the dispute in a way that is mutually beneficial to both parties.

Overall, a settlement agreement proposal letter is an important tool for resolving disputes and legal proceedings outside of the court system, and can help to save time, money, and resources for all parties involved.

Issued by who, to whom
Who should issue this letter, and to whom?
The Employer (you) to the Employee
Applicable legal jurisdiction
In which jurisdiction can this letter be used?
Great Britain & NI (United Kingdom)

What legislation and best practice guidelines have been taken into account in the development of this template?

  • Employment Rights Act 1996: This act allows employers and employees to reach a legally binding agreement to end an employment relationship.
  • Equality Act 2010: This act prohibits discrimination in the workplace on the basis of age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation. A settlement agreement can ensure that any potential discrimination claims are settled and avoided.

  • Data Protection Act 2018: This act sets out the requirements for the processing of personal data. Settlement agreements often involve the exchange of personal data, and the act ensures that this data is processed lawfully and in accordance with data protection principles.

  • Working Time Regulations 1998: These regulations set out the maximum hours an employee can work in a week, and their entitlement to rest breaks and annual leave. A settlement agreement can include provisions relating to the employee's entitlement to holiday pay and time off.

  • Health and Safety at Work Act 1974: This act places a duty on employers to ensure the health, safety, and welfare of their employees. A settlement agreement can ensure that any potential health and safety claims are settled and avoided.

  • National Minimum Wage Act 1998: This act sets out the minimum wage rates that employers must pay their employees. A settlement agreement can include provisions relating to any outstanding payments or arrears owed to the employee.

Settlement agreement proposal [Delete this line]

[Company name]

[Sender address]



[Recipient name]

[Recipient address]


Dear [Recipient first name],


Without Prejudice and subject to S111A Employment Rights Act 1996

We are writing to you because, as you are aware, we have had some concerns about your [conduct/attendance/performance] [delete as appropriate and specify sufficient detail about previous disciplinary/performance management action taken, and about the ongoing concerns, to allow the employee to make an informed decision about his/her options].

We consider that, in these circumstances, one option is to offer you a settlement agreement to bring our employment relationship to an end, and we invite you to consider the proposal set out below.

If we are unable to reach such an agreement, then you should be aware that it is our intention to proceed to the next stage of our disciplinary [or performance management] procedure [insert brief details of where the employee can reasonably access the appropriate written procedure.] I will therefore convene a disciplinary meeting to make a decision on these concerns, and that this could result in your dismissal.

You should note that there is no obligation for you to enter into discussions with us in relation to this proposal. If you choose to do so or not, please also note that any correspondence or discussions which may follow this letter will have no bearing on any disciplinary [or performance management] procedure or decision taken by us, in the event that we are unable to reach an agreement.

[You would receive:

[ - a lump sum payment of [£x] [up to £30,000]] free of tax and NI [providing further details of how the proposed sum has been arrived at may help the employee make an informed consideration of the proposal]

[- payment of [£x] for outstanding holiday entitlements, subject to tax and NI].]

[Your employment would end on [insert date which must take into account the employee's statutory or contractual notice period or include details of payment in lieu of notice if that is permitted by the employment contract].]

[You would agree not to bring a claim [or claims] of [refers to claim(s) that it is proposed to settle eg unfair dismissal] to an employment tribunal.

[You would receive an agreed reference covering your period of employment with us.]

[Add if appropriate: If you wish us to arrange a meeting with you to discuss this proposal and the terms of the offer then we will do so. [insert details of contact person and method of contact].] [Add if appropriate: You may be accompanied by a work colleague, trade union official or trade union representative at any such meeting.]

This offer is made subject to final agreement of full terms, and it is open for you to consider until [insert time] on [insert date, which must be reasonable taking account of the particular circumstances].

If you do wish to accept this offer we will draw up a formal agreement in writing. The law provides that you would need to obtain independent advice on the terms and effect of the proposed agreement before signing it. [As part of our offer, we would contribute up to a maximum of £[x] towards the cost of your obtaining legal advice about the contents of the formal agreement, which sum would be paid direct to your solicitor or adviser following our receipt of a copy of your invoice from them].

It is our intention that this letter will be covered by section 111A of the Employment Rights Act 1996. This means that the offer we are making and any subsequent discussion about it may not be admissible as evidence in any subsequent unfair dismissal claim. Further information on the provisions of section 111A and details on who may act as your independent adviser can be found in the Acas Code of Practice on Settlement Agreements, and associated guidance, which can be accessed at

Yours [faithfully | sincerely],



[Sender name]

[Sender job title]

[Sender telephone]
[Sender email]

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Settlement agreement proposal letter
settlement agreement proposal letter