Settlement agreement for an employee with under two years' service

For decades an employer could dismiss an employee with under two years' service without a reason that would survive a tribunal, provided the reason was not one of the day-one claims; the 2025 Act removes that qualifying period and replaces it with a statutory initial period and a lighter process, which makes the settlement calculation for short-service staff different from what employers are used to. The agreement has to reflect the claims that apply to the employee's length of service at the time, price the exit accordingly, and be proportionate to a short employment. Drafting for the employer, I deliver the agreement and a note on the conversation in three working days for a fixed £795, or for £995 with the negotiation with the employee's adviser included.

Who this is for

Employers in England and Wales ending the employment of someone with a few months' or a year's service, who want to know whether a settlement is needed and what it should cost.

What matters in a short-service settlement agreement

What the two-year rule did and what the 2025 Act does to it

Section 108 of the Employment Rights Act 1996 required two years' continuous employment to claim ordinary unfair dismissal, so that an employer dismissing an employee with less could do so without the fair reason and fair process the Act otherwise requires, subject to the day-one claims; the Employment Rights Act 2025 removes that qualifying period and introduces a statutory initial period of employment during which a lighter process applies to dismissals for conduct, capability and similar reasons, with the details set by regulations on a timetable the regulations set, so that an employer dismissing outside the initial period, or inside it without the lighter process, faces an ordinary unfair dismissal claim; the agreement and the note state the position as it stands when the exit is being planned.

The claims that never needed two years

Whatever the position on ordinary unfair dismissal, an employee with short service has always been able to claim discrimination, harassment and victimisation under the Equality Act 2010, whistleblowing detriment and dismissal under the Employment Rights Act 1996, automatically unfair dismissal for the listed reasons (pregnancy and family leave, health and safety, asserting a statutory right), breach of contract, unlawful deductions and the other day-one rights, and a short-service exit that touches any of them needs a settlement as much as a long-service one; the agreement waives the claims specifically in the manner section 203 of the Employment Rights Act 1996 and section 147 of the Equality Act 2010 prescribe.

Assessing the exposure for a short-service employee

The exposure for a short-service employee is usually smaller than for a long-service one, because the compensatory award for unfair dismissal reflects lost earnings until new employment and a short-service employee is often re-employed within months, because the basic award is small, and because the employer's reason is often sound; it is larger where a discrimination or whistleblowing claim is in play, because those awards are uncapped and include injury to feelings, and the note that comes with the agreement helps the employer assess which it is before deciding whether to offer a settlement or to dismiss with a process.

The package and why it is smaller

The package for a short-service employee is notice (worked or paid in lieu, with post-employment notice pay taxed as earnings under section 402B of the Income Tax (Earnings and Pensions) Act 2003), accrued holiday, and a compensation payment that reflects the claims rather than the service (a few weeks' pay for a low-risk exit, several months' where a day-one claim has substance), within the thirty thousand pound exemption under section 403 of that Act, with the employer's contribution to the adviser's fees under section 413A and the tax indemnity; the agreement is drafted so that the employee's adviser can see that the payment matches the exposure, which is what makes a modest offer acceptable.

The process the employer should still follow

Even where the employee cannot claim ordinary unfair dismissal, the employer should give a reason, hold a meeting, allow a response and confirm the decision in writing, because the day-one claims are defended by showing the real reason and because the lighter process under the Employment Rights Act 2025 initial period will require at least that; the offer should be made in a protected conversation under section 111A of the Employment Rights Act 1996 where the only claim is ordinary unfair dismissal, or without prejudice on the basis of a dispute where a day-one claim is in play, and the note explains the sequence so that the employer has the process behind it if the offer is refused.

The waiver, the reference and the terms proportionate to a short employment

The agreement waives the claims listed, attaches a factual reference, agrees a brief announcement, contains confidentiality and non-derogatory terms within the limits the law sets (disclosures protected by section 43J of the Employment Rights Act 1996 and the Employment Rights Act 2025 limits on non-disclosure terms about harassment and discrimination, effective on a timetable the regulations set), deals with the return of property and any training repayment, and reaffirms restrictive covenants only where the role justified them; an agreement for a short employment should be short, and an employee with six months' service presented with a twenty-page document asks what the employer is worried about.

What it costs

Settlement agreement, £795. Drafted for your situation, with a note on how to have the conversation. Three working days.

Settlement agreement including reasonable negotiation with the employee's adviser, £995. The agreement in three working days. The negotiation then runs until the agreement is signed or it becomes clear it will not settle. Reasonable negotiation means what, in my experience, amounts to the standard back and forth on a settlement agreement. If the employee or their adviser is being unreasonable, for example by conducting themselves unprofessionally or requiring a substantial rewrite that needs material further legal advice to you, I will flag it and we will discuss how best to proceed, which may involve further fixed-fee work. That would be unusual.

Buying online forms the engagement on payment. The scope is what the settlement agreements for employers page describes, you accept the Terms of Service at checkout, and I email you within four working hours to get started. If you would rather ask something first, email me.

What you get

• A bespoke settlement agreement drafted for the exit you are dealing with
• Proper waiver of the relevant statutory claims, so the agreement does what you are paying for
• Advice on the tax treatment, including the £30,000 exemption and what falls outside it
• Confidentiality, non-derogatory statements and an agreed reference
• Reaffirmation or replacement of restrictive covenants, which is often the real value
• A short note on how to open the conversation and keep it without prejudice or protected
• One round of amendments after the employee's adviser responds

What is not included

• Advising the employee, which their own adviser must do independently for the agreement to be valid
• Tribunal representation if the matter does not settle
• Payroll processing of the settlement sums
• Handling the settlement payment, since I do not hold client money

Questions I am often asked

Can we still dismiss someone with under two years' service without a reason?

Not once the 2025 Act's provisions are in force, which replace the qualifying period with a statutory initial period and a lighter process. Before then, ordinary unfair dismissal needs two years but the day-one claims never did. The note states the position at the time.

Is a settlement worth it for a short-service employee?

Where a day-one claim is in play or the account is disputed, yes, at a modest price. Where the reason is sound and no such claim is in play, a dismissal with a process may be enough. The note helps the employer decide.

How much do we pay?

Notice, holiday and a compensation payment matched to the claims: a few weeks' pay for a low-risk exit, more where a discrimination or whistleblowing claim has substance. Service is not the measure for a short-service employee.

Related guidance and services

• Settlement agreements for employers, £795, the service this page describes
• Employment contracts and handbooks, £595
• Shareholders agreement, £995
• Settlement agreement for an employee in probation
• Protected conversations before a settlement

This page is general guidance for businesses in England and Wales, not advice on your own circumstances. Last reviewed: October 2026. Email geoffrey@caesar.co.uk.