Settlement agreement negotiations can be a daunting and sometimes stressful prospect.
In this article we take a look at how you should go about it, offering practical advice and guidance to help you negotiate the best possible outcome.
This guide covers:
- When should I resign?
- How should I behave when negotiating?
- Should I make offers or threats to get a settlement?
- What settlement payout should I aim for?
- Can I save tax in my settlement payout?
- Can I use inside information to negotiate a better deal?
- Should I negotiate a confidentiality clause?
- Do time deadlines matter in settlement negotiations?
- Should I submit a grievance during negotiations?
- Should I use my appeals?
- How important is the small print in a settlement document?
- Should I hire a lawyer to negotiate on my behalf?
- Next steps
A ‘settlement agreement’ is sometimes referred to as a ‘compromise agreement’, but legally they mean the same thing.
In essence, a settlement agreement is a legally binding document which settles any claims you may have against your employer and pays you a sum of money in return for settling and leaving your employment.
Examples of settlement agreements can be found in our settlement agreements templates.
Negotiating for a settlement agreement – especially if you are in a dispute with your employer – can be a daunting and sometimes stressful prospect.
In this guide we offer a variety of tips and practical advice for use when you are negotiating, from the time you realise that you are probably going to be leaving your job, to when you achieve your final goal of a fair exit settlement deal.
When should I resign?
Don’t resign – yet! 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 when negotiating a better settlement agreement. Why should they give you a decent exit package now if you have already left?
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’ve got rid of you there really is less motivation for them to even answer the ‘phone when you try to call them to negotiate a settlement.
If you do really feel that you have no choice but to resign, bear in mind that you could 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 tribunal claims can start to run from your last day in the office, regardless of your official resignation date.
Top TipsRaphael Prais
Send a without prejudice letter
Get ‘lawyered up’
How should I behave when negotiating?
Don’t play too nicely
Not surprisingly, asking employers nicely for large lump sums of cash during settlement agreement negotiations just doesn’t work.
Remember it’s not what you ought to receive because you’ve been such a loyal employee and generally nice person. It’s what they owe you for the mistreatment afforded and for forcing you out of your job in one way or another.
There’s no need to be nasty, but you’re going to have to be a ‘tough cookie’.
Negotiating a settlement agreement is not for the faint hearted, and 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 by behaving badly
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 (see Top Tips above), that unless the 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 angry.
Should I make offers or threats to get a settlement?
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, you can drop a few subtle hints about 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).
If you ‘openly’ threaten to sue them, 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.
Don’t openly say that trust and confidence has broken down either.
What settlement payout should I aim for?
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.
Try our calculator (below) as well and see our guide on Preparing your tribunal schedule of loss, which can be helpful for calculating a settlement amount as well as for a tribunal.
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 negotiation such as this, as with any other type of negotiation.
Can I save tax in my settlement payout?
There are tax breaks available for your settlement agreement, and both sides can benefit from them. 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 risk-averse when it comes to tax, but it’s definitely worth asking.
Can I use inside information to negotiate a better deal?
If you have any information relating to malpractice by your employer which would help motivate them to give you a better deal, then what better time to mention it than now?
It is especially relevant when 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 legitimate bargaining chip.
Should I negotiate a confidentiality clause?
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.
Do time deadlines matter in settlement negotiations?
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.
It’s 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 submitting a formal grievance or issuing a tribunal claim. 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 think that you have to stick to it.
Often employers put arbitrary deadlines on their offers which give you little or no time to consider matters properly and/or seek legal advice.
There is often no reason for doing this other than to put pressure on you. And once these deadlines slide, 95% of the time their offer will still be available to you.
They’ve done the arithmetic and calculated what they’d be prepared to pay you, and that won’t change just because some arbitrary tactical deadline has passed.
This can be a bit of a ‘white knuckle’ ride for you, but it does show them that you are not prepared to dance to their tune any more – you’re in charge of the negotiation now.
Issue a claim within 3 months
Whatever happens, don’t let your negotiations 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.
Should I submit a grievance during negotiations?
Our general rules are:
- If you want to remain in employment, raise a grievance.
- If you want to leave and negotiate a settlement agreement, then write a without prejudice letter first.
- If your without prejudice letter doesn’t result in a decent settlement, then raise a grievance.
So, submitting a grievance can be a good way to escalate your matter if your employer is ignoring you. 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. (See also our separate guide on grievances.)
You can flush out any moves which they are planning to make in their defence, which will really help you fine-tune your claim and anticipate their response. Always appeal your grievance response, as set out below.
Should I use my appeals?
At all stages in the ‘open’ process, whether that process is redundancy, dismissal, performance review, or grievance etc, then you should take full advantage of all the appeals that your employer offers you.
If they offer you the right to 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 it’s harder work for you, then it’s also harder work for your employer, so it’s more likely that you will end up with a successful outcome. See also our guide on Appeals.
How important is the small print in a settlement document?
When you reach a level of compensation or damages which you would be happy to accept in your negotiation, don’t rush in showing 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. (See our settlement agreement templates for examples.)
This allows you to see if there are any issues hidden in the small print which could scupper the deal. It’s a lot easier to negotiate the wording of an agreement before you give away the fact 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.
Should I hire a lawyer to negotiate on my behalf?
If you approach your employer with 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 negotiations.
Aside from the obvious point that they know you really mean business and the case might well end up in tribunal, you will also have the benefit of the legal advice itself, particularly if you ensure that you employ an experienced specialist employment lawyer.
If you have a good case, then you can probably negotiate some kind of no-win-no-fee deal with your lawyer, and if they can negotiate a better financial payout for you, over and above that which your employer originally offered, then you have nothing to lose.
What’s more, a lot of employers don’t like dealing with lawyers who are well able to stand up to them.
They will also have to spend money on instructing lawyers themselves, whereas they might well prefer to give it to you to make you go away.
If you would like expert legal help with negotiating your settlement agreement, then get in touch with us at Monaco Solicitors.
We are a well-established firm of specialist employment law solicitors who represent employees only. We have negotiated thousands of settlements on behalf of employees, usually achieving significant increases in financial compensation over and above anything initially offered by the employer.
- Settlement agreements: how much?
- 15 quick negotiating tips
- Dealing with employers' offers
- Evidence: record keeping
- Subject access requests
- Without prejudice letter templates
- Without prejudice meetings & conversations
- Payment in lieu of notice
- Tax on pension payments
- Share options
- Ex gratia payments
- Obtaining references
- Wrongful dismissal