How to negotiate a settlement package

How to negotiate a settlement package

A settlement package typically contains more than one element. It may seem complicated, but this gives you (and your employment lawyer) more room to negotiate.

The key thing to note is that you don’t have to accept the first settlement your employer offers you. You can negotiate until you think the terms are fair. For example, you can ask for more money, or for fewer restrictions. And we can help!

This article tells you more…

What’s a settlement agreement?

The settlement is the amount that your employer agrees to pay you in return for not taking them to the employment tribunal.

Agreement is another word for contract. It’s a legally binding document, which means both parties must do what’s agreed or risk going to court.

Note that a settlement agreement is known as a compromise agreement in Northern Ireland.

When might you get a settlement agreement?

A settlement agreement is usually offered as an end to your employment or to resolve a dispute with your employer.

As it’s a legal document, before you sign you need to take the advice of an independent solicitor who specialises in employment law, such as Paul Doran Law. We’ll help you through the potential risks, pitfalls and complexities. Don’t worry, your employer will usually pay our fees.

Why might you get a settlement agreement?

There are various situations when you might be offered a settlement agreement:

As compensation if you’ve been mistreated at work
To exceed the statutory minimum, such as notice period, holiday pay, redundancy pay
To be tax-efficient (Up to £30,000 is tax-free)
To end a dispute quickly, without the risk and hassle of going to the employment tribunal

For example, performance management is stressful for all concerned. So, if your employer has suggested you’re underperforming, you could suggest ending the employment on agreed terms instead of trying to argue that your performance is OK.

What’s included in a settlement agreement?

There are several elements that might be negotiated within a settlement agreement. These include:

The amount of salary or wages you’re due
Payment in lieu of notice
Garden leave
Termination payment
Contractual commission, bonuses, share schemes, and long-term incentive plans (LTIPs)
Discretionary bonuses
Confidentiality clause
Non-disclosure clause (especially if it’s a case of whistle-blowing)
Post-termination restrictions, such as being forbidden to work for a competitor for a defined period of time
Agreed reference
Non-disparagement clauses (this means you can’t say bad things about your employer, and they can’t say bad things about you)
Company property such as a car or phone
Company-funded schemes e.g. private health insurance

How much might be included in a settlement agreement?

There’s no minimum, and the amount you’re awarded varies depending on your individual situation.

To give you an idea, a reasonable payment for unfair dismissal or constructive dismissal might be between three and six months’ salary plus notice pay. This assumes you’ve been employed for over two years.

You’d have to pay tax as normal on payments you receive to cover unpaid wages and notice periods.

When you might get more

You might get more if you can prove discrimination or you’re whistleblowing. In these cases, the two years’ service requirement doesn’t apply, and there’s no maximum.

If you’re disabled or nearing retirement age, you might get more because it would probably be harder for you to get another job. The same applies if you work in a specialist area where jobs are hard to find.

If you’ve worked at your employer for a long time, because you hold valuable information about the company and may be harder to replace.

If you’re on sick leave and have paid sick leave remaining, since your employer may prefer to have you off the payroll rather than have to keep paying you when you’re off sick.

If you can prove your employer has caused you to suffer from depression or other mental or physical illness. There’s no upper limit for personal injury claims, but they are difficult to prove.

If you follow the proper process, that is:

Make an informal complaint via your line manager, HR Department or Union representative
Submit a formal grievance (see your employment contract or staff handbook for details)
Appoint an employment lawyer, as this shows you are taking the situation seriously and we can help you through the negotiation

When you might get less

If you’re over retirement age, you might get awarded less because you were due to retire anyway.

If you’re facing disciplinary action, because your employer will try to blame you for the problem. However, if you’re on a Performance Improvement Plan (PIP), they will have to pay you for the duration of the plan whether you stay or they ask you to leave.

If you’ve already left and got another job, you won’t get paid for loss of income as you haven’t lost any!

Other variables

The size of company where you work might make a difference. Big companies typically dislike bad publicity, but they might have their own lawyers and can probably afford to draw out a case for a long time. On the other hand, small companies may not be able to afford to pay your claim.

We find that public sector organisations tend to avoid settling outside the employment tribunal – but that doesn’t mean you shouldn’t try.

Tip number 1

If you’re in a dispute with your employer, don’t resign! Remaining employed puts you in a stronger negotiating position. Also, if you’ve already left, we’d have to go for constructive dismissal and those cases are usually a lot harder to win.

The best thing is get in touch with us early on, and we’ll tell you what to do.

Tip number 2

Think about the situation from your employer’s point of view (we can help you with that). There might be things you can offer that mean a lot to them – and it won’t cost you anything. It makes it easier for them to agree to things you want in return.

For example, they might want you to agree to keep the settlement confidential, while you might want them to give you a good reference to help you get another job. You’re both likely to want to save time and cost and the hassle of going to the employment tribunal.

Tip number 3

Try to keep emotion out of it. Be calm and clear in all your communications. Keep a written record of everything relevant. And talk to an expert employment lawyer like us, early on.

What this means to you

If your employer has offered you a settlement agreement, we’ll let you know if it’s in your best interests to sign it or whether there is room to negotiate a better deal.

If you’re on the point of taking your employer to the employment tribunal, you must go through Acas first. Acas are neutral conciliators who will help reach agreement between you and your employer, so you might get to a settlement that way.

At any point in the process, talk to. As expert independent employment lawyers, we’re on your side! We never act for employers. And the initial conversation is absolutely free.

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