Template letter enclosing a settlement agreement

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What’s a template letter enclosing a settlement agreement and when do you need it?

You should use this letter when you have reached a settlement agreement with an employee who will be leaving your employment as a result, and the reasons for the exit relate to unsatisfactory conduct, attendance or performance issues on the part of the employee.

The settlement offer must be a genuine attempt to settle an existing dispute. ‘Dispute’ doesn’t mean every possible disagreement under these rules. It means a situation where you or the employee has brought, or might reasonably be expected to bring, legal action against the other and that this situation is ongoing at the time this settlement offer is made.

An existing dispute is likely to exist where, for example, you’ve previously warned the employee that unless their performance or behaviour improves, disciplinary action will be taken, which could result in their dismissal, or an employment relationship has already ended and the employee has taken action against your business, or has indicated that they intend to do so.

So, offering a settlement ‘out of the blue’, where there has been no warning to the employee that their continued employment might be at risk, is highly unlikely to be capable of description as an ‘existing dispute’.

Reaching an exit settlement with an employee can be a legally significant process and it’s vital that you get the timing and the detail right. We strongly recommend taking expert advice right from the moment that an employee’s departure from your business is under consideration.

What you do right at the start may well dictate what you can legally do next and how much flexibility you have to achieve your preferred outcome.