Settlement agreement for a fixed-term employee

A fixed-term contract looks like it ends by itself, but ending it early without a notice clause costs the pay to the end of the term, letting it expire is a dismissal with the claims that follow, and a fixed-term employee has a statutory right not to be treated less favourably than permanent colleagues. A settlement agreement resolves each: the balance of the term or a negotiated figure, the waiver of the claims on expiry, and the claims particular to fixed-term status. The agreement is drafted for the employer, with a note on how to have the conversation, for a fixed £795 in three working days; where the employer wants the negotiation with the employee's adviser handled as well, the fee is £995.

Who this is for

Employers in England and Wales ending a fixed-term, project or maternity cover contract early, or letting one expire where the employee may claim, and employers whose fixed-term staff have been renewed for years.

What matters in a fixed-term employee's settlement agreement

The fixed term and what ending it early costs

A fixed-term contract with no notice clause cannot be ended early except for gross misconduct, and an employer that ends it early is liable for the pay and benefits to the end of the term as damages (subject to the employee's duty to mitigate), while a contract with a notice clause can be ended on notice like any other; the agreement should state which the contract is, because it decides the starting point: an employer ending a two-year contract after six months with no notice clause is negotiating from eighteen months' pay, and one with a notice clause is negotiating from the notice period and the claims.

Expiry as a dismissal and the claims it brings

The expiry of a fixed-term contract without renewal is a dismissal under section 95 of the Employment Rights Act 1996, so the employee may claim unfair dismissal (with the qualifying period as it stands under the Employment Rights Act 2025 changes on the timetable the regulations set), a redundancy payment where the reason is redundancy and the service is sufficient, and discrimination where the non-renewal is connected to a protected characteristic (a fixed-term employee not renewed on becoming pregnant is the classic case); a settlement on expiry waives those claims in return for an enhanced payment and the terms the employee values.

The less favourable treatment claim and the successive contracts

The Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 give a fixed-term employee the right not to be treated less favourably than a comparable permanent employee (pay, benefits, pension, training, the right to be told of vacancies) unless justified, and under regulation 8 an employee on successive fixed-term contracts for four years or more is permanent unless the fixed term is objectively justified, so that the 'expiry' of their contract is an ordinary dismissal; the agreement should address both: the waiver of less favourable treatment claims, and the recognition (or the employee's acceptance) of the position where the contracts have been renewed for years, because a settlement that treats a permanent employee as a fixed-term one has mispriced the exit.

The package, the balance of the term and the tax

The package comprises salary and benefits to the termination date, accrued holiday, notice where the contract provides for it, and a compensation payment reflecting the balance of the term where there is no notice clause or the claims where there is one; the tax follows the ordinary rules, with damages for the balance of the term using the thirty thousand pound exemption in section 403 of the Income Tax (Earnings and Pensions) Act 2003 but post-employment notice pay under section 402B taxed as earnings where the contract has a notice clause (and, where it does not, the rules treat the unexpired term in a way the accountants should confirm), and the agreement allocates each element with the tax indemnity.

The waiver and the claims particular to fixed-term staff

The agreement waives the claims meeting the requirements of section 203 of the Employment Rights Act 1996 and section 147 of the Equality Act 2010 with independent advice certified: breach of contract for the balance of the term, unfair dismissal, redundancy, discrimination, less favourable treatment under the 2002 Regulations, and the claim to permanent status under regulation 8, listed specifically; the employer contributes to the adviser's fees under section 413A of the Income Tax (Earnings and Pensions) Act 2003, and the agreement contains the employee's warranties and the confidentiality and non-derogatory terms within the limits the law sets (the protected disclosure carve-out that section 43J of the Employment Rights Act 1996 makes compulsory and the Employment Rights Act 2025 limits on non-disclosure terms concerning harassment and discrimination on the timetable the regulations set).

The reference, the next role and the terms that help

A fixed-term employee leaving early needs a reference that explains the ending neutrally (the project concluded, the funding ended, the cover was no longer needed) and may need time to find the next role, and the agreement should attach the reference, agree the announcement, consider an extension of the termination date or garden leave to let the employee search while employed, and address any training repayment clause (which should not apply where the employer ended the contract), the return of property, and any contractual right to be considered for permanent vacancies; the terms that cost the employer little are the ones that settle a fixed-term exit.

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

Our project has been cancelled and the contractor has a year left on a fixed term with no notice clause. What do we owe?

The pay and benefits to the end of the term as damages, subject to mitigation, unless the employee agrees less. The settlement negotiates from that starting point, with the reference and the search time as the terms that help.

Is letting a fixed-term contract expire a dismissal?

It is, in law, with unfair dismissal, redundancy and discrimination claims potentially following. A settlement on expiry waives them in return for an enhanced payment.

Our fixed-term employee has been renewed five times over six years. Are they fixed-term?

Probably not: after four years of successive fixed terms without objective justification they are permanent by statute, and the expiry is an ordinary dismissal. The settlement should be priced on that basis.

Related guidance and services

• Settlement agreements for employers, £795, the service this page describes
• Employment contracts and handbooks, £595
• Shareholders agreement, £995
• Employment contract for a fixed-term employee
• Settlement agreement on redundancy

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.