If you are involved in an employment dispute, both parties will be encouraged throughout the process to reach a settlement. Once concluded, the settlement will be legally binding.

It’s essential to get the terms of the agreement right. This can require presenting a settlement agreement counter-offer.

What is a settlement agreement?

Settlement agreements are used to resolve disputes in the workplace or when someone’s employment comes to an end. They can be entered into at any stage of proceedings (prior to or at the time of dismissal, up to and including during any tribunal hearing).

The agreement needs to be in writing to be legally binding. Once the agreement is finalised, no further action relating to the complaint will be possible.

An employee is required to get separate advice on the terms of any proposed settlement agreement, either from a lawyer, an authorised official or a trade union representative.

Employee calculating the value of a compensatory award

Understanding what an employee may be entitled to

When negotiating a settlement and considering a counter-offer, start by working out what may be awarded should the matter not be settled, resulting in a decision by a tribunal.

It is not normally possible to know exactly what a tribunal will order; there will always be different factors to take into account, e.g.

  • the type of dismissal
  • the surrounding circumstances
  • the length of service
  • the age of the employee.

Knowing the basics of how an award may be calculated is a good starting point.

How an award is calculated

An award in an unfair dismissal situation normally consists of a basic award and a compensatory award.

The basic award and statutory redundancy are a fixed sum calculated using a set formula:

  • Length of time the employee was employed
    • Age when the employee was dismissed
    • Employee’s gross weekly pay on dismissal.

As of the time of writing (Spring 2022) the maximum basic award stands at £17,130.

The compensatory award is to make up for the money lost due to being dismissed unfairly. The maximum compensation the tribunal will award is a maximum of £93,878, or one year of the employee’s salary—whichever is lower.

The compensatory award may include an element to make up for the fact that the employee will have to work for any new employer for two years before they acquire employment law rights.

If it’s a redundancy situation, the tribunal may order a protective award in addition to the basic award. This is compensation for the fact an employer did not consult with an employee before making them redundant. This could be up to a maximum of 90 days’ pay.

The amount of the award will also depend on the date any claim was made. The rates allowed are revised in April of each year.

An employee and employer signing a settlement agreement confidentiality clause

Other considerations when negotiating a settlement agreement

A settlement agreement should also take account of any notice period (either to be worked or taken as leave, or a payment in lieu instead). Benefits, like health care or entitlement to shares, should also be a consideration.

When negotiating, the parties may wish to include some form of confidentiality clause limiting what the employee can discuss about the reasons for the termination of the employment.

An employment reference will also normally be included within a settlement agreement, as should details of how and when payment is going to be made.

Thought also needs to be given to any tax implications.

Understanding the settlement process

The initial offer is normally made by the employer. However, this does not have to be the case.

A reasonable amount of time should then be allowed for the other party to consider the offer.

The involvement of ACAS

If an employment dispute involves a claim for redundancy, unfair dismissal or whistle blowing, the matter should be referred to ACAS for what is known as early conciliation.

This is normally triggered by the employee, who is required to file a form with ACAS. ACAS then acts as a facilitator between the parties, trying to help them reach an agreement.

If an agreement isn’t reached, the matter will proceed to a tribunal, but negotiations can continue.

Preparing a settlement agreement counter-offer

The above factors should give the parties an idea of where to start with the negotiations and will often be part of the logic behind the initial offer.

When you have received an offer, you can acknowledge receipt, but you do not have to respond with a counter-offer straight away.

The factors to consider when preparing a settlement agreement counter-offer will depend on the unique circumstances of the case. Take time to think about what you’ve been offered and make sure you get professional advice.

Your legal advisors should be able to tell you whether it’s a fair offer in all the circumstances of your case, taking into account any weaknesses in your case or in the other party’s case.

AN employee taking advice from an instructed solicitor

There will be some areas that are easy to agree, e.g. calculating the basic award based on salary, age and number of years’ service.

Other areas may not be so easy to agree, such as how long an employee could be out of work before they can get a new job.

When you are ready, prepare a written counter-offer that fairly represents the situation and that you would be happy to accept.

Obtaining professional advice when preparing a settlement counter-offer

The negotiation process involved with settlement agreements is not necessarily straightforward. You will need sound legal advice before agreeing to an offer, and when considering both the scope for a settlement agreement counter-offer, and what that counter-offer should contain.

At Springhouse, our team of experienced employment law solicitors have the expertise and knowledge to assist employees with settlement agreement negotiations, bringing your case to a fair conclusion that meets expectations.

For an initial conversation about your circumstances, please get in touch today.

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Updates: For employers: Settlement agreements |

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