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, and what this article is about. You might also like to read how to negotiate a settlement agreement as well.

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.

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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.

Top Tips

Lorna Valcin
  • 1
    Try our Settlement Agreement Calculator (See below)
  • 2
    Be prepared to fight if you want more; and
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    Get legal representation, evidence and witnesses.

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?

Disputes & how much for your 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.

 

Annual Income

Everything is based around your salary, because, as with much of life, the more you earn, the more you get paid. It does make sense according to the employment tribunal awards in this country, because in constructive / unfair dismissal cases, a tribunal would only tend to award a successful claimant with an amount of money equivalent to that which they lost whilst in between jobs.

Bonuses & commission

Often bonuses are discretionary and difficult to argue that you were contractually entitled to, so we would normally try to negotiate a portion of your bonus which you can show should have paid to you. Commission is a different matter though because normally commission is contractual. Let’s face it they will probably find some way to dispute the figure, right? So we wouldn’t normally insist on them paying all your commission, but most of it would be a good result.

Age

If you are nearing retirement age then any claim could be of a much higher value because it could be harder 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. If you’re over retirement age however then you would potentially get awarded less because you were due to retire anyway.

Number of years worked for current employer

You would tend to get more where you’ve worked for your employer for a long time because you’ve probably forged more loyalty there, and your level of knowledge about the company might be greater too, so things like handovers are more valuable. Also you might know where all the so-called ‘bodies are buried’ in terms of any questionable practices which they want to stay confidential.

Notice period

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.

Number of employees

The bigger your company is the more money they have to spend. 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: believe it or not, our media don’t like to portray big business in a bad light. However, although bigger companies tend to want to settle cases more, they have more red tape and approvals to get, and they also have more options should they wish to fight – like long drawn out investigations for example. Small companies on the other hand sometimes can’t afford to settle a case because they just don’t have the money in the bank. So the middle ground here is the sweet spot – the medium sized company.

Disciplinary

If you are currently facing a disciplinary then generally you can expect less. This is because, regardless of the strength of your defence, your employer will undoubtedly try to blame you for the situation.

Sick leave

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.

Discrimination

Where you have suffered discrimination this looks bad for your employer so you should get more money, so long as you have sufficient evidence, ideally in the form of a witness and/or emails. Discrimination in its various forms is discussed further in our discrimination overview article, but it is very difficult to prove, so don’t expect a huge payout like you may have heard about in the media.

Grievance

If you have submitted a grievance then your employer will often want to pay you off rather than spend time and money investigating your complaint. However, remember to see if you can short circuit this process by submitting a without prejudice letter first.

Already left/new job

If you’ve already left then this is a serious blow to your chances of getting a decent settlement. There’s no need for them to pay you off to get rid of you is there? If you’ve already got another job this is pretty much the final nail in the settlement coffin because you can’t even claim that you have suffered any loss of income.

Already issued a tribunal claim

If you’ve issued a tribunal claim/then it does make you look more serious. On the other hand you may have burnt some bridges, including any rapport with HR, and your case has now gone up to the legal department, and sometimes legal think that they have to win every fight.

Disabled

You could expect to receive more if you are disabled, because although you are normally able to do your job properly, it is easier for them to make your working life harder by failing to make reasonable adjustments,, and it can be harder to get another job too.

Whistleblowing

It’s a tricky one is whistleblowing! Companies, especially big ones, feel obliged to fully investigate, and of course to defend, any allegations of unlawful practice. If you have information about practices within the company such as fraud or malpractice, then they will often want to pay you a lump sum in exchange for you signing a confidentiality clause in a settlement agreement – the so-called gagging clause.

But to counterbalance that, what if word gets out and you go to the press anyway? Then they’ve made it look worse for themselves by paying you to keep your mouth shut. Certainly you can make subtle hints about exposure, or keep them verbal, and use that to leverage a good deal. See our article about whistleblowing claims for a more in-depth discussion of what to do in such difficult circumstances.

Performance improvement plan (PIP)

If you’ve been put on a performance improvement plan this can actually be a bit of a godsend. Think about it – they’re going to have to pay your salary for the duration of the plan, so they might as well pay you that now just to get rid of you. Also all the wasted management time and potential legal fees too – why not suggest that they just pay you that now to leave quietly. (Don’t forget to negotiate an agreed reference too!)

Public sector

In our experience, many public sector organisations have a policy that they won’t negotiate with employees. This means that you have to sue them in the Employment Tribunal, which is fine, but it does make life more difficult.

Legal representation

If you approach your company with specialist lawyers on board, then you are likely to receive more money because your employer will realise that you might take them to tribunal and that they should take you seriously. Furthermore they will also need to get ‘lawyered up’ themselves, and they may instead prefer to pay you the money which they would have spent on legal fees, so long as your opening offer is within a reasonable range.

Our helpful guides:

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 that is 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. (You can read more here about whether or not your redundancy is fair.)

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.

Personal injury claims

You may be able to negotiate a settlement agreement / compromise agreement amount for personal injury. In employment situations, the most common types of personal injury are psychological injuries such as depression and similar. Compensation is theoretically unlimited but in practice it’s tightly pegged to the type of injury caused It’s also very difficult to prove, as you have to show that the employer’s conduct was the only cause of your condition, and that they knew that their actions could lead to injuring you

What non-financial terms can be included in a settlement agreement / compromise agreement?

The best other term to include is an agreed reference. Apart from that, there are lots of different terms which can be included – because these things are a negotiation, rather than being set in stone, there is no real standard way of doing it. But most settlement agreement documents include confidentiality clauses; some have garden leave; some even let you keep company property like a car or a phone.

How do I make sure a settlement agreement is legally binding

In order for a settlement agreement to be legally binding it needs to match certain criteria, which are quite complicated. But the actual document itself can be one of the templates which we give away on our website here. And then it needs to be signed by your solicitor. There is always a fee provided by the employer for this. When we review and sign settlement agreements, we don’t ask you to pay any further money than the fee your employer pays.

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