Settlement agreement for a family business exiting a relative

A family business ending a relative's employment is dealing with an employee who may never have had a contract, who may hold shares or be owed money, whose exit will be judged by other family members, and who will be at the next family gathering whatever the agreement says. The settlement agreement has to treat the employment as an employment with the statutory conditions met, deal with the shares and the money separately, be defensible as fair to the rest of the family, and be reached in a conversation that does not end the relationship as well as the job. 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

Family-owned businesses in England and Wales ending the employment of a son, daughter, sibling, spouse or in-law, whether because the role is not working, the business is changing hands or the family has fallen out.

What matters in a family business exit

The employment, the shares and the family as three separate things

The relative is an employee (with the rights the Employment Rights Act 1996 and the Equality Act 2010 give any employee, which do not depend on the family relationship), may be a shareholder (with rights under the shareholders' agreement, the articles and the Companies Act 2006, including a petition under section 994), and is a family member; the settlement agreement ends the employment as section 203 of the Employment Rights Act 1996 and section 147 of the Equality Act 2010 demand, deals with the shares under the company documents or by a separate agreement with a contractual release, and leaves the family to the family.

The relative who was never on a contract

Many family members work on terms never written down, which does not make them any less employees: the written particulars under section 1 of the Employment Rights Act 1996 should have been given, the notice period is the statutory minimum under section 86 (or a longer period the family practice implies), the pay is what was paid, and the holiday is the statutory entitlement under the Working Time Regulations 1998, with the relative able to claim for the missing particulars and any underpayments; the agreement should record the terms as they were, settle the arrears (holiday pay is the usual one), and waive the claims, and the business should give the remaining family employees contracts, which the note suggests.

Independent advice and the relative who objects to a solicitor

The agreement is valid only if the relative has received advice from an independent adviser, which a relative may resist as unnecessary or as a sign of hostility; the business should explain that the advice is a legal requirement without which the agreement does nothing, that the business pays for it under section 413A of the Income Tax (Earnings and Pensions) Act 2003, and that the adviser's job is to make sure the relative understands what they are signing, and the business must not suggest an adviser connected to the family or the business, because the adviser must be independent; the note includes the words for this part of the conversation, which is the one families get wrong.

The package, the fairness between siblings and the family's view

The package follows the ordinary rules (notice with post-employment notice pay taxed as earnings under section 402B of the Income Tax (Earnings and Pensions) Act 2003, holiday, compensation within the thirty thousand pound exemption under section 403), but in a family business it is also judged by the other family members: a package that is generous to the relative who is leaving may be resented by the siblings who stay, and one that is mean will be remembered; the business should decide the package against the claims and the business's means, should be able to explain it to the family in those terms, and should treat family employees consistently, because a sibling treated worse than another is a discrimination claim with a family history behind it.

The shares, loans and guarantees that the family entangled

A family member may hold shares (which the exit does not affect unless the documents provide or the family agrees, and which should be dealt with by transfer, buy-back under section 694 of the Companies Act 2006 or a separate agreement with the tax advised on), may have lent money to the business or borrowed from it (settled or set off, with any director's loan approved as section 197 required), may have guaranteed the business's borrowing (released or indemnified), and may be a director (resigning with the filings); the agreement should list each entanglement and say what happens to it, because a relative who leaves the payroll but keeps the shares, the loan and the guarantee has not left.

The conversation and the relationship that continues

The conversation should be had by the family member who runs the business, in a protected conversation under section 111A of the Employment Rights Act 1996 or without prejudice where there is a dispute, with the business reasons stated plainly and the family reasons left out, the offer in writing, time to consider it and the adviser's fees paid, and no discussion of the exit at family occasions until it is settled; the agreement contains confidentiality that is realistic for a family (the terms, not the fact of the departure) within the limits the law sets (whistleblowing, which section 43J of the Employment Rights Act 1996 puts beyond any confidentiality term and the limits the Employment Rights Act 2025 places on confidentiality about harassment and discrimination, coming in on a timetable the regulations set), mutual non-derogatory terms the family can live with, and a reference; the note is written for the person who has to have the conversation with their brother.

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

My brother has worked in the business for fifteen years with no contract. Can we use a settlement agreement?

A settlement agreement is the right document: it records the terms as they were, settles any arrears, meets the statutory conditions with independent advice, and waives the claims. The absence of a contract does not make him less of an employee.

He refuses to see a solicitor. Can we do without one?

You cannot. Without independent advice the agreement waives nothing. Explain that it is a legal requirement the business pays for, and that the adviser must be independent of the family and the business.

He owns shares and has a director's loan. Does the agreement deal with those?

It should list each and say what happens: the shares by transfer or buy-back under the company documents, the loan settled or set off, any guarantee released, the directorship resigned. A relative who leaves the payroll but keeps the rest has not left.

Related guidance and services

• Settlement agreements for employers, £795, the service this page describes
• Employment contracts and handbooks, £595
• Shareholders agreement, £995
• Shareholders agreement for a family company
• Settlement agreement for a founder leaving with shares

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.