Once you have decided that a settlement agreement is appropriate for you, the first thing you will want to consider is whether or not the financial package makes it worth signing it.

Several factors will come into play here. Usually these will be to do with the strength of your bargaining position, as the employee. This will turn on how easy it would be for the employer to dismiss you fairly in any case, and how long this would take.

How strong is your bargaining position?

Everything will therefore turn on the circumstances of the proposed termination. If this would be unfair and you have more than two years’ employment, or is for a potentially discriminatory reason (because you are viewed as too old) then a higher amounts can be negotiated.

If the situation is one of redundancy, this can be harder to argue against. The central question here would be, is your position going to be replaced or not? If not, then there is in all likelihood a genuine redundancy situation, and compensation will potentially be limited to the amount of time it would take to run a fair consultation process and the statutory redundancy amount. Another important thing to look at in redundancy scenarios is whether there is alternative employment that you feel you could do.

Another potential scenario is that the settlement agreement has been offered as part of a disciplinary process against you, or some sort of performance improvement process. Employees in this situation will need to take a cold, objective look at the likelihood of a fair dismissal. The stronger the possibility of a fair dismissal, the lower amount the claim should be settled for. It can be advantageous to leave early with a good reference.

In terms of the negotiation itself, it will be important for the employee to make the strength of their legal position clear i.e. to point out why they would argue that a fair dismissal could not be achieved, and that the amount of money in the settlement agreement should be looked at from the point of view of a possible Employment Tribunal award.

Financial considerations

In terms of settlement amounts it is also important for employees to take into account their full notice period, any untaken annual leave, and any benefits.

Another often overlooked aspect of settlement monies is whether they will reach the employee tax-free or not. Usually payments in lieu of notice and in respect of any untaken annual leave will be taxable, and only truly ex-gratia or non-contractual payments will be tax-free.

Negotiating style

It is usually a good idea for employees to remain resolute. Impression is everything and it will usually be the employer who is just as keen as having the settlement agreement as the employee, and ultimately the employee does not have to sign. How confrontational you become is an important judgment call; this approach is not always advisable, but may reap dividends.

Representation by a solicitor is always useful, and, indeed, a solicitor will pretty much always have to be involved in signing the settlement agreement off. Unfortunately employers will usually only include an allowance for solicitors which is just enough for them to run through the agreement with you and sign it off. If you would like the solicitor to be involved in any negotiations, this will usually cost more, but it is important that you ask your solicitor to request a higher contribution from your employer if the circumstances above apply.

Further reading

Read our article on how much to settle Employment Tribunal claims for.

Contact Springhouse

Find out about our no-cost (to you) settlement agreement service.


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