Your settlement agreement (formerly known as compromise agreement) is a legally binding agreement between you and your employer that you both sign up to when your employment ends. It legally settles any claims that you may have against your employer and you receive a financial payment as detailed in the agreement.
One of the questions we get asked the most from employees who are hoping for a settlement agreement is: ‘How much should I get in my agreement?’ It’s what this article is all about. You might also like to read our article on how to negotiate a settlement agreement.
- Ex gratia payments in employment settlements
- Payment in lieu of notice (PILON)
- Tax calculations on settlement agreements
- Tax on pension payments & settlement agreements
- Garden leave and settlement agreements
- Share options in employment severance packages
- Restrictive covenants
- Obtaining references from your employer
How much do cases usually settle for?
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 a settlement 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. 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, whereas with a settlement agreement the first £30,000 can 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 TipsLorna Valcin
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What factors affect how much you should get?
Some of the other factors which influence how much you should get are as follows:
- Determination (yours!) – Does your employer believe you might take them to tribunal?
- Employer – Do they have lots of money, or, conversely, cash-flow problems?
- Evidence – What 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?
- Psychology – Can you keep calm under pressure and make the right moves?
- Representation – Do you have professional legal representation?
- Tax status – Can you structure the deal to save both sides tax?
- Witnesses – Do you have any colleagues who would be prepared to back you up?
How much for a Redundancy settlement agreement?
If the redundancy is genuine and the selection process is fair, then all you’re technically entitled to is the statutory minimum (see our article on redundancy), rather than any kind of enhanced or ‘ex gratia’ payment.
If the redundancy is unfair, or the selection process incorrect (see also ‘Is my redundancy fair?’), then how much you should get would be similar to a dispute siutation, as outlined below.
How much for a Dispute settlement?
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. If you’re over retirement age however then you would potentially get awarded less because you were due to retire anyway.
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.
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.
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.
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.
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 at work 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.
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.
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.
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. (See also our article on Payment in lieu of notice.)
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.
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.
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!)
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.
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.
Tribunal claim already issued
If you’ve issued an employment 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: your case has now gone up to the legal department, and sometimes legal think that they have to win every fight.
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.
How much would an employment tribunal 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. The kinds of award considered by a tribunal are outlined further in our page on Employment tribunals.
Personal injury claims
You may be able to negotiate a settlement agreement amount for personal injury. In employment situations, the most common types of personal injury are psychological injuries such as depression and similar. Financial awards for personal injury have no upper limit, but in fact are closely aligned to the kind of injury that’s been suffered. They are notoriously hard to prove as well: you have to demonstrate that your injury was caused entirely by your employer’s actions (or lack of actions), and that your employer should have been aware that their actions could have resulted in your injury.
What non-financial terms can be included in a settlement agreement?
The best non-financial term to include is probably an agreed reference. (see article on obtaining references from your employer). Apart from that, there are lots of different terms which can be included – because these things are by individual negotiation, rather than being set in stone. 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.
Then it needs to be reviewed and 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. (see article on concluding a settlement agreement.)