Settlement Agreements & Compromise Agreements – How Much?
“How much should I get in my settlement agreement?” is probably the question which we get asked the most. If you’re reading this you’re probably thinking about leaving your job and negotiating a settlement agreement package, either due to a redundancy situation or a dispute. These are unfortunate circumstances, but actually very common.
In this article, we try to look at some of the factors which might indicate how much you should get from your settlement agreement. We have broken these down into ‘internal’ & ‘external’ factors, as well as ‘dispute’ or ‘redundancy’. You can also try our online settlement agreement calculator.
What are the factors affecting the size of a settlement agreement package?
Do you have any colleagues who would be prepared to back you up?
What is strength of your evidence – maybe some emails, or even recordings of meetings?
The more you earn, the more they need to pay you.
Length of service
The longer you’ve been there the more goodwill you’ve built up.
How bad was/is it?
Do you have professional legal representation?
Can you keep calm under pressure and make the right moves?
Do they have lots of money, or, conversely, cash-flow problems?
Does your employer believe you might take them to tribunal?
Can you structure the deal to save both sides tax?
Top 3 TIPS
- Try our Settlement Agreement Calculator;
- Be prepared to fight if you want more; and
- Get legal representation, evidence and witnesses.
How much for my settlement agreement in a redundancy?
How much you would receive in a redundancy settlement agreement would depend greatly on your circumstances. If the redundancy is genuine and the selection process is fair, then all you’re technically entitled to is the statutory minimum, which you can find out more about in our redundancy article, rather than any kind of enhanced or ‘ex gratia’ payment. We see these difficult cases most often when there is a genuine economic reason for the redundancy, there are a number of people being made redundant, and there is an objective selection process (like a whole department is going). Even in these situations you can potentially volunteer to leave before the consultation, and ask your employer to pay you an amount in a settlement agreement equivalent to how much you would have earned had you stayed employed and dragged out the consultation process.
In practice however, employers will offer more than the minimum amount in the form of a settlement agreement, in order to facilitate your smooth exit, and paper over the cracks in their selection process. Read more about negotiating your redundancy package. If the redundancy is a complete sham, for example where your employer has fudged the results for personal reasons, then how much you should get will be similar to a dispute situation, as set out below. In that situation you should write to request information about the process, like whether you have been placed in a ‘pool’ for comparison with other colleagues, and if so, who the other colleagues in the pool are, and what are the selection criteria for deciding which employee is made redundant.
If you’ve not been placed in a pool then ask what the business reason for selecting you is, and point out that there are other people who should have been placed in a pool with you based on their job function. You could put these points into a written grievance and submit it to your employer during the redundancy process, or you may have a right of appeal against your redundancy which you could envoke here.
How much for my compromise agreement in a dispute?
List of common factors which will affect your settlement agreement if you are in a dispute with your employer:
In a dispute, there are many factors which combine to determine how much you should get, but here is a list of some of the most common ones and how they could affect your settlement agreement amount.
Obviously the more money you earn, the more you should get in a settlement agreement, but then again the more expensive it is for the employer to pay you off. This is the most important factor regarding how much you should get. Normally bonuses are not payable after you have been given your notice, but you can argue for the inclusion of an equivalent amount if you earned it (or were on target) and they are dismissing you unfairly.
If you are nearing retirement age then any claim could be of a much higher value because it could be harder or impossible for you to get another job, therefore your economic loss could be greater. This is especially true if your job is quite specialist and hard to come by anyway.
Number of years worked for current employer:
The longer you’ve worked somewhere the more you’ll get, partly because you’ll be valued by your decision-maker colleagues and have a rapport with the HR department, and partly because you may know too much about ‘where the bodies are buried’ or questionable practices within your organisation, so they will want you to go quietly.
Normally we would negotiate for your notice period to be paid as a lump sum, and then ask for a couple of months’ money on top as a starting point, depending on the case. Of course if your notice period is very long, like 6 months, then you’re less likely to get anything on top of this, because an employment tribunal would normally only award a successful claimant enough money to tide them over until they find a new job. Read our article about whether notice pay is taxable.
Number of employees:
The bigger your company is the more money they have to spend. Simple. Furthermore, bigger companies often prefer not to have legal battles going on with ex employees and they don’t like bad publicity either. However, employees often think that their dispute would attract media attention when in fact it wouldn’t: our media don’t like to portray big business in a bad light, believe it or not.
If you are currently facing a disciplinary then generally you can expect less. This is because, regardless of the strength of your defence, the employer will undoubtedly try to blame you for the situation.
Performance reviews & PIPs:
If you are currently facing this then generally you can expect less. This is because your employer could probably manage you out of the business through a performance improvement plan (‘PIP’), so why would they pay you off instead? You can often ask them to pay you an amount equivalent to the length of time it would take them to manage you out on a PIP.
Being on sick leave can help to increase how much you should get, especially where you have lots of paid sick leave remaining. If there’s a dispute, it makes sense for your employer to pay you this money as a lump sum rather than keep you on the payroll but off sick. If your GP signs you off sick for stress this can help you. The situation becomes less helpful once you have exhausted your entitlement to sick pay.
If you are party to information such as fraud or malpractice within the company then they will often want to pay you a lump sum in exchange for signing a confidentiality clause in a settlement agreement. See our whistleblowing article. Of course they may want to defend their conduct too, so make sure you have a couple of emails or documents proving the wrongdoing.
Where you have suffered discrimination this looks bad for your employer so you should get more money, so long as you have some evidence, ideally a witness and/or emails. No employer wants the public to know that they have discriminated, even though many do in practice.
If you have submitted a grievance then the employer will often want to pay you off rather than spend time and money investigating your complaint. (You could use some of our grievance letter templates for this.) It is also a good way to flush out the employer’s defence in writing before you resign, which allows you to hone your claim later if you have to go to Tribunal.
It might be that instead of your employer paying you your notice pay net of tax, and them having to pay employer’s NI on it too, you can convince them to pay you an equivalent sum in a tax free ‘ex gratia’ payment. If this is worded correctly in your settlement agreement is can be attractive to both sides, and can increase how much you will get. Unfortunately a lot of employers are paranoid about using this tax break and so may well refuse. If you don’t ask you don’t get however.
If you approach your company with specialist lawyers on board, then you will probably receive a lot more money because your employer will realise that you might take them to tribunal therefore they had better take you seriously. Furthermore, the right lawyers would present your case in the strongest possible light.
How much a tribunal would award:
This largely depends on whether you get another job quickly or not (as your losses are based on your actual financial loss from being out of work) but there is a statutory cap on the compensatory award in unfair dismissal claims which is the lower of £78,962 or 12 months’ gross pay. On top of that there is a £25,000 limit for breach of contract claims (such as not being paid your notice period or wages).
If your claim is for discrimination or detriments due to whistleblowing you can also claim compensation in the same way as for unfair dismissal if you have lost your job as a result of it (but there is no upper limit to the award for compensation). You may also be awarded an amount for ‘injury to feelings’ that reflects how serious the discrimination was (normally from around £500 – £30,000).
How much money you should get – why witnesses count
How much you should get in your settlement agreement or compromise agreement depends to a large extent on the strength of your evidence. The best type of evidence, which is also the rarest, is witness evidence. If you are lucky enough to have a witness at work willing to stand up for you, then we suggest that you ask them to sign a written statement quickly, before they change their minds! Obviously it’s a risky business being a witness for a colleague against your employer, and for this reason it is unusual to have any witnesses at all. Which just leaves you with other types of evidence…
Evidence in settlement agreement negotiations
How much evidence do you have? After witnesses, written evidence is the most important type. Unfortunately most employers won’t put any discriminatory comments in writing, because people know about discrimination nowadays and the fact that it’s illegal. It’s more common to find employers committing to writing emails containing evidence of, for example, victimising whistleblowers, breaching contracts, or constructively unfairly dismissing someone. If you can’t get emails, then consider recording meetings on your phone so that at least you have audio evidence. This can be used in tribunals if necessary, and is great for catching out employers for lying later on in the process. Once they know that you have evidence of them lying, they are more willing to reach a swift settlement agreement, naturally.