15 May 2024 by Susanna Spencer

Settlement agreement negotiation – 5 top tips

You may be offered a settlement agreement by your employer for a number of reasons, for example in a redundancy situation, or as an alternative to a disciplinary or capability process taking place.

The process usually entails offering you a financial package in exchange for your employment ending and you agreeing not to sue your employer.

We are experienced in negotiating settlement agreements in a wide variety of contexts. Here are five top tips to secure the best possible outcome:

1. Work out what claims you have and what happens if you don’t sign

Many individuals offered settlement agreements are not minded to pursue litigation. However, it is essential to consider what potential employment law claims you might have, as this is key to assessing your bargaining power.

In a redundancy situation where proper warning, consultation and selection has taken place, it may be hard to criticise the approach taken by your employer or to identify meritorious claims. However, in other scenarios, there may be valuable discrimination or detriment claims that are worth significantly more than the deal you have been offered.

It is also sensible to consider what would happen if you don’t sign the agreement. For example, if you are offered a settlement agreement at the outset of a redundancy exercise but would end up better off financially if you remained employed for the time it takes your employer to undertake a consultation process, it may be appropriate to use this fact to negotiate an improved package.

It is however sensible to take into account the practicalities of pursuing a claim should you not reach an agreement. It is currently taking on average 12-18 months to get to a final Employment Tribunal hearing and it can be a stressful and uncertain process. When contrasted with receipt of an immediate settlement payment, it is clear to see the benefits of a settlement agreement.

2. Pitching it right

In a straightforward redundancy situation where a fair process has been followed and an employer is offering settlement payments considerably in excess of the statutory minimum, there is likely to be less scope to negotiate a considerably better package. In these scenarios, it will generally be advisable to take a friendly approach to negotiate any amendments to the settlement agreement, taking care not to risk jeopardising the deal on the table.

Conversely, where matters are acrimonious with litigation contemplated, or where a workplace situation remains unresolved following a grievance process, taking a more aggressive approach bymaking a time-limited counteroffer may well yield better results.

It’s also helpful to think about who to approach at your employer by considering who has control over financial decisions and who is likely to be the most sympathetic to any arguments you put forward. Depending on your seniority and the circumstances of your case, this might be your line manager, a member of HR or a member of the Board / senior executive team.

3. Think about things from your employer’s perspective.

Your employer is offering you a settlement agreement for a reason. Usually, it is to exit you from employment in such a way that minimises disruption and risk to the business.

It may be quite apparent that your employer wishes to avoid incurring management time and resources undertaking a grievance investigation or a capability procedure for alleged poor performance. If so, it may well be that there is considerable scope for negotiation that you can leverage when making a counter-proposal.

Your employer is also likely to be concerned about the cost and publicity of defending Employment Tribunal proceedings should you bring a claim. You can hint to this when standing your ground in negotiations. However, care should be taken to ensure that any correspondence does not cross the line over into blackmail.

4. Don’t just focus on the settlement payment

Whilst the key aspect to a settlement agreement is likely to be the settlement payment, it is often worth negotiating other benefits such as an agreed reference, or shortening the duration of any post-termination restrictions that limit you from working for competitors after your employment has ended.

You can sometimes also get your employer to extend the period of cover under medical insurance to enable you to continue accessing treatment under the policy.

It is customary for employers to make a contribution to your legal fees for receiving legal advice on the settlement agreement. It’s often possible to negotiate an increased contribution towards the cost of your legal fees for any negotiations.

5. Be wary of resigning

If you are unhappy at work and considering resigning, it is usually advisable to hold off doing so whilst negotiations take place. Whilst you may have a viable constructive dismissal claim, this is hard to succeed with and (in most cases) an uncertain and risky approach. Remaining employed means that your employer needs to work to bring your employment to an end. You can leverage this fact in negotiations, alluding to the time and effort that it would take to conclude any internal processes contrasted with agreeing a swift exit under a settlement agreement.

If you require any employment law assistance with your business, please do not hesitate to get in touch with Susanna Spencer or Heather Cowley.

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