How to Negotiate a Settlement Agreement - for employees only

How to Negotiate Settlement Agreements

Learning how to negotiate a settlement agreement (also known as a compromise agreement) can be a daunting prospect, and in this article we take an in-depth look at how you should go about it. Don’t be misled by the humour we have injected into this piece. This is a deadly serious topic and we have imparted much of our knowledge as specialist employment lawyers, for employees’ eyes only!

Top 3 TIPS

  1. Submit a formal written grievance
  2. Consider if/when to resign
  3. Get ‘lawyer’d up’

Three business people in a boardroom

Don’t resign

Again, don’t resign. By now, your employer probably wants you to leave, and if you make their life difficult enough they will effectively pay you to go quietly. If you resign however, you lose an important bargaining chip. Why should they give you a decent settlement agreement now? Ok you could take them to the employment tribunal, but are you really going to do that? And as they say ‘out of sight out of mind’ – once they’re rid of you there really is less motivation for them to even answer the ‘phone when you call them to negotiate a settlement agreement.

If you do really feel that you have not choice but to resign bear in mind that you can still work your notice period and claim constructive dismissal – you don’t have to resign on the spot. Also the three month time limit for claims can start to run from your last day actually in the office, regardless of your official resignation date.

Don’t play nicely

Unsurprisingly, asking employers nicely for large lump sums of cash for your settlement agreement just doesn’t work. Remember its not what you ought to receive because you’ve been such a loyal employee and generally nice person. Its what they owe you for the mistreatment afforded and for forcing you out of your job in one way or another. No need to be nasty, but you’re going to need to be a tough cookie. Negotiating a settlement agreement is not for the faint hearted, even if you do have lawyers on your side you’ll still need to be prepared to dig in for a fight. Hopefully it’ll be worth it.

But don’t burn your bridges

Its no good ranting and raving about how badly you’ve been mistreated and  how you’re going to rain down vengeance upon your employer should they refuse to agree to your demands. This is not a  hostage situation! No matter how badly you’ve been treated, try to maintain a sense of decorum. There’s nothing wrong with stating matter-of-factly, in a without prejudice letter, that unless the settlement agreement negotiation is successful, you will see them in court.  Try to take some of the emotion out of the situation, at least no more emotion than strictly necessary. We’re not asking you to hide your feelings, just don’t come across as too bitter.

Offer something in return

To negotiate a settlement agreement, you need to strike the balance between the carrot and the stick. Offer something to your employer, in terms of the concessions which they want. For example your resignation and a confidentiality clause or maybe a smooth handover to your successor. At the same time point out to them the harsh realities of not doing a deal with you, such as ending up in a long costly tribunal which will see them out of pocket: win lose or draw.

Aim high, but not too high

Aim for a fair settlement amount

It’s important to be realistic and figure out how much your potential claim is worth, and also what you would be happy with. To get a bit more help with this, see our article on how much money you should get. Once you’ve calculated that, roughly double it, and you’ve got a broad idea for your upper negotiation limit. This starting point allows the other side to negotiate you down to half, and think they’ve done well. Never start at the point where you want to end up – it’s human nature to want to knock people down in a settlement agreement negotiation as with any other type of negotiation.

Issue a claim within 3 months

Whatever happens, don’t let your settlement agreement negotiation push you over the strict 3 month time limit for tribunal claims. Your employer may try to stall you or string out the negotiations in the hope that you do miss this deadline, and if you do, then you might as well forget it, because tribunals are very strict about this. Learn more in our employment tribunal time limits article.

Save tax

There are tax breaks available for settlement agreements, and both sides can benefit from these. Have a look at our tax article to learn more, but the most common break is £30,000 tax free as an ex gratia payment. Point this out to your employer and couch it in terms that you could both walk away better off. Most employers are so risk averse when it comes to tax that they won’t even use this tax break to pay you your notice pay tax free, but it’s definitely worth asking.

Inside information

If you have any information relating to malpractice by your employer, which would help to motivate them to give you a better deal, then what better time to mention it than when negotiating a settlement agreement? It is especially relevant whereby such behaviour is the cause of you having to resign in the first place. Indeed, by revealing the company’s bad behaviour, you are probably helping to ensure that they change their ways going forwards. Of course you cannot blackmail your employer by asking for money just to keep quiet about certain information; but it can be used to point out the strength of your potential claim, and therefore be a perfectly legitimate bargaining chip.

Confidentiality clauses

Its standard practice to include a confidentiality clause when negotiating a settlement agreement. So you can list the things you want, such as an ex gratia payment, outstanding holiday pay, and then mention that you will be happy to sign a confidentiality clause confirming that the circumstances surrounding the termination of your employment will remain confidential. This is worth mentioning when the company knows it’s been up to no good, and it knows that you know too.

Open threats

Don’t openly threaten to sue them because this can be construed as breaching the relationship of trust and confidence which is supposed to exist, and technically it could be a firing offence. We say ‘openly’ because you can and should mention this in a without prejudice letter or meeting. Read more about how to use the without prejudice doctrine in your compromise agreement negotiation here. Don’t say that the trust and confidence has broken down either.


Deadline for application

Set a deadline in your without prejudice letter and say that the offer will be withdrawn if it is not accepted by that deadline. And stick to it. Its no good running a settlement agreement negotiation using deadlines and then giving the other side one more chance – they’ll think you’re soft – so only brandish deadlines if you’re prepared to use them. The type of event to threaten, apart from withdrawing the offer, can include issuing a tribunal claim or resigning. Also remember you can use the words ‘final offer’ when you’ve really reached your bottom line. Conversely, when your employer gives you a deadline to negotiate a settlement agreement, don’t stick to it. This can be a white knuckle ride, but it does show them that you are not prepared to dance to their tune anymore – you’re in charge of the negotiation now.


Submitting a grievance is a great way to further a settlement agreement negotiation. By requiring a written response, formal grievances force the employer to address the issue head on rather than turning the other cheek and hoping you’ll go away. It is also a handy way to see what defence the employer has up their sleeve before you issue your tribunal claim. You can flush out any cheeky moves which they are planning to make in their defence, so that you can really fine tune your claim and anticipate their response. Always appeal your grievance response, as set out below.

Use your appeal

At all stages in the ‘open’ process, whether that process be redundancy, dismissal, performance review, or grievance etc, then you should take full advantage of all the appeals which your employer offers you. If they offer you one appeal – use it. If there are two levels of appeal available – use them both. Don’t be tempted to take the easy exit and not use your appeal rights. If its harder work for you, then its also harder work for your employer, so its more likely that you’ll negotiate a settlement agreement.

Small print

When you reach a level of compensation or damages which you would be happy to accept in your negotiation, don’t rush in there and show your pleasure and accept the deal before you’ve seen the small print. Instead, play it cool, say you’ll have to think it over, but in  the meantime could they send over a draft settlement agreement. This allows you to see if there are any banana skins in the small print which could scupper the deal. It’s a lot easier to negotiate the wording of a settlement agreement before you have given away that you are happy with the money element, otherwise a savvy employer would simply insist you sign their wording as they know you don’t want to fight any more.

Getting ‘lawyer’d up’

If you approach your employer with specialist employment lawyers representing you, they will take a lot more notice of what you are saying, and this will really put them on the back foot in the settlement agreement negotiations. Aside from the obvious points that they know you really mean business and might well end up in tribunal, you will also have the benefit of the legal advice itself. And a lot of employers don’t like speaking to lawyers who represent their employees because they are afraid of anyone who is able to stand up to them. They will also have to spend money on instructing lawyers themselves, whereas they would probably rather give it to you to make you go away.

Next steps

If you want to talk to us about your work situation, including your next steps and whether you deserve a better deal, just get in touch on 020 7717 5259 or click here to request a free no obligation 15 minute consultation.