Settlement agreement to exit a senior employee

A senior employee's exit is where the employer's exposure is highest: a large salary and bonus, a long notice period, covenants that need to survive, confidential information that must stay confidential, and a departure that has to be explained to the team and the market. A settlement agreement ends the employment on agreed terms, waives the claims the employee could bring, reaffirms or replaces the covenants, and settles the reference and the announcement, in exchange for a payment structured to use the tax exemption. I draft the agreement for the employer for a fixed fee of £795, delivered in three working days, with a note on how to open the conversation; a version including negotiation with the employee's adviser is £995.

Who this is for

Employers in England and Wales parting with a director, a senior manager or a key employee by agreement, whether after a breakdown in the relationship, a change of strategy or a decision that the role has run its course.

What matters in a senior employee's settlement agreement

What the agreement must contain to be valid

A settlement agreement waives statutory claims only if it meets the conditions in section 203 of the Employment Rights Act 1996 and the equivalent provisions (section 147 of the Equality Act 2010 for discrimination claims, section 288 of the Trade Union and Labour Relations (Consolidation) Act 1992 for protective awards): it must be in writing, relate to the particular complaints identified, record that the employee has received advice from a relevant independent adviser (a solicitor, a certified union official or a certified advice worker) covered by insurance on the terms and effect of the agreement and its effect on their ability to bring tribunal proceedings, identify the adviser, and state that the conditions are satisfied; the claims should be listed specifically, because a general waiver does not catch claims the employee did not know about and the agreement should say what it covers.

The protected conversation and how to open it

Section 111A of the Employment Rights Act 1996 allows an employer to have a pre-termination negotiation that cannot be referred to in an ordinary unfair dismissal claim, which lets the employer propose an exit without first establishing a dispute, provided there is no improper behaviour (pressure, a deadline of less than ten days to consider the written offer under the Acas Code of Practice on settlement agreements, threats); the protection does not extend to discrimination, whistleblowing or automatically unfair dismissal claims, where the ordinary without prejudice rule requires an existing dispute, so the note that comes with the agreement explains how to open the conversation, what to say and what not to say, and how to record it, because an exit conversation that is not protected is evidence in the claim it was meant to avoid.

The package, the tax and the thirty thousand pound exemption

The package usually comprises notice (worked, on garden leave or paid in lieu), accrued holiday, any contractual bonus or commission, a compensation payment for loss of employment, and benefits for a period; under sections 401 to 403 of the Income Tax (Earnings and Pensions) Act 2003 the first thirty thousand pounds of a termination payment that is not earnings is exempt from income tax, but post-employment notice pay under section 402B is taxed as earnings whether or not the contract has a pay in lieu clause, the excess over thirty thousand pounds bears income tax and employer's national insurance, and the agreement should allocate each element correctly with a tax indemnity from the employee; the agreement states the treatment the employer applies and the accountants confirm it.

Restrictive covenants, confidentiality and the announcement

The agreement should reaffirm the restrictive covenants in the contract (or replace them with new ones for fresh consideration where the existing ones are doubtful), with the garden leave period credited, should impose confidentiality on the terms and the circumstances of the departure (subject to the carve-outs the law requires: protected disclosures under section 43J of the Employment Rights Act 1996, the limits the Employment Rights Act 2025 places on non-disclosure terms concerning harassment and discrimination on the timetable the regulations set, disclosure to advisers, family and regulators), mutual non-derogatory statements, and an agreed internal and external announcement with the wording attached; for a senior employee the covenants and the announcement are often worth more than the waiver.

The reference, the handover and the conditions

The agreement should attach the agreed reference (factual, and used for all requests), set the handover obligations (a stated period of cooperation, the return of property, devices, documents and data, the resignation of directorships and offices with the Companies House filings, the transfer of relationships), and make the payments conditional on the employee's compliance (the resignation, the return of property, a warranty that no claims have been issued, a warranty that the employee has not breached the contract in a way the employer did not know about, with repayment or clawback of the compensation on breach of the warranties or the covenants); the conditions are what make the agreement enforceable rather than hopeful.

The employee's adviser, the negotiation and the timetable

The employer usually contributes to the employee's legal fees for advice on the agreement, which is exempt from tax under section 413A of the Income Tax (Earnings and Pensions) Act 2003 if paid direct to the adviser under the agreement, and the adviser's certificate is part of the document; the Acas Code expects the employee to be given a reasonable period (ten calendar days as a minimum) to consider the offer and take advice, and most agreements are signed after one round of amendments from the adviser, which the fixed fee covers, with the negotiation service covering the back and forth where the adviser wants more; the agreement is dated and signed in counterparts, and the employer's payments are made within a stated period after the termination date.

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 propose an exit to a senior employee with no dispute and no process?

Under a protected conversation, yes, for ordinary unfair dismissal purposes, with no improper behaviour and a reasonable time to consider the offer. Where discrimination or whistleblowing could be alleged the protection does not apply, and the note explains how to handle that.

Is the whole settlement payment tax-free?

The first thirty thousand pounds of compensation that is not earnings is exempt; notice pay is taxed as earnings whatever the contract says, and the excess over thirty thousand pounds bears tax and employer's national insurance. The agreement allocates each element and the accountants confirm the treatment.

Do the restrictive covenants survive the settlement?

They survive if the agreement reaffirms them, and they can be replaced with better ones for fresh consideration if the existing ones are doubtful. For a senior employee the covenants are often the point of the agreement.

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 a director leaving the board
• Employment contract with restrictive covenants

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.