Settlement Agreements & Compromise Agreements – How Much?

 

‘How much should I get in my settlement agreement (or compromise agreement)?’ is probably the question we get asked the most. Also try our settlement agreement calculator, and read how to negotiate a settlement agreement too.

Settlement Calculator

When you should get 1 to 4 months’ salary plus notice pay

Assuming that you have been employed for over 2 years, that you have either been dismissed or forced to resign, and that you have the evidence to prove that the dismissal, or constructive dismissal, was unfair, then we would expect most cases to settle for between 1 and 4 months’ salary plus notice pay.

If you don’t fit into these criteria don’t worry, you can still negotiate an exit package, also known as a settlement agreement (formerly called a compromise agreement).

Why do we say 1 to 4 months’ money plus notice pay? Well, think about what you would get if you managed to win an employment tribunal claim. A judge would award you an amount of money to compensate you for your lost wages whilst you tried to find another job.

For most people in the UK, getting a job would take a few months at most. If you were out of work for a longer period of time, like 6 months or more, then you would need to have a good reason for not finding work in that time. For example you might be a very specific specialist in your field or your type of job might be becoming increasingly rare.

You would need to produce detailed evidence of your job hunt in order to prove that no jobs were available, so on that basis, the maximum which you’re likely to receive in a tribunal is 6 months’ wages.

It is also worth noting that you would also be taxed on any award received after a tribunal, unlike with a settlement agreement whereby the first £30,000 tends to be tax free, so an employment tribunal award might only look like 4 months’ wages net to you.

So if you would only get 4 months wages at a tribunal, with all the inherent risks of losing, and the costs of hiring a lawyer, then it surely follows that you would accept say 2 months’ money out of court.

Factors to take into account

Some of the other factors which influence how much you should get are as follows:

  • EvidenceWhat is the strength of your evidence – maybe some emails, or even recordings of meetings?
  • Income – 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.
  • Mistreatment – How bad was/is it?
  • Representation – Do you have professional legal representation?
  • Psychology – Can you keep calm under pressure and make the right moves?
  • Employer – Do they have lots of money, or, conversely, cash-flow problems?
  • WitnessesDo you have any colleagues who would be prepared to back you up?
  • Determination – Does your employer believe you might take them to tribunal?
  • Tax status – Can you structure the deal to save both sides tax?

Top 3 Tips

  1. Try our Settlement Agreement Calculator;
  2. Be prepared to fight if you want more; and
  3. Get legal representation, evidence and witnesses.

Disputes & how much for your settlement agreement

How much should I get in my settlement agreement?
In a dispute, there are many factors which combine to determine the payment you should get, but here is a list of some of the most common ones and how they could affect your settlement agreement amount.

 

 

Redundancy & how much for settlement agreements

If the redundancy is genuine and the selection process is fair, then all you’re technically entitled to is the statutory minimum (see our redundancy article) rather than any kind of enhanced or ‘ex gratia’ payment.

This applies if there is a genuine economic reason for the redundancy, for example if 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 / compromise agreement equivalent to how much you would have earned had you stayed employed and dragged out the consultation process.

Two women and a man in a meeting

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. (You can read more here 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 invoke here.

 

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.

There are 2 main elements in a tribunal award for unfair or constructive dismissal, being the compensatory award and the basic award.

There is a statutory cap on the ‘compensatory award’ in unfair dismissal (including constructive unfair dismissal) claims which is the lower of £80,541 or 12 months’ gross pay (as at February 2018).

So, if your gross yearly pay is higher than this amount you can’t get any more at tribunal. If your gross yearly pay is less than this, the maximum award for unfair or constructive unfair dismissal is is one year’s pay.

The basic award is calculated like a statutory redundancy pay – a week’s pay or £489 (as at February 2018), whichever is lower, for every year of service with an adjustment for an age factor if you are over 41.

The second is a compensatory award. This is calculated with reference to how much you have lost.

All claimants have a duty to mitigate their loss: you must try to find alternative work at the same, or higher, salary. The tribunal will factor in your salary from your new job and your attempts to mitigate your losses into the compensatory award.

There is a £25,000 limit for breach of contract claims such as not being paid your notice period or wages or for share options.

For this reason, senior executives will need to consider High Court action, where there is no limit, or preferably just the threat of High Court action (because no one wants to go to court at all, never mind the High Court – frankly its a bit scary!).

For discrimination claims 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.

However, 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 (which can vary from around £500 to £30,000).

The most common award is towards the lower end of this scale, being around £500-£5,000. It’s rare to see the higher end being awarded by judges.

 

 

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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 request a free consultation, no obligation.