9 Steps to Negotiating a Better Settlement Agreement

settlement agreement negotiationsIf your employer has offered you a settlement agreement, you may be wondering if it’s open for negotiation.

Often an employer will offer an employee a sum of money, expecting them to come back and make a counter-offer.

In this article, I provide a few tips on how to maximise your chances of getting the best settlement agreement .

(If you’re happy with everything you’re being offered in the settlement, there’s no need to read this article. Read this one instead.)

1. Prepare Well for the Settlement Agreement Negotiation

If your boss calls you into a room, sits you down and offers you a settlement agreement, they may want a response straight away. Our advice is that you ask for a few days to think about it. This gives you time to:

  • think about what you’ve been offered;
  • obtain legal advice; and
  • prepare a response

The ACAS Code of Practice on Employment Settlement Agreements recommends that employees are given at least ten days to consider a settlement offer. Although this isn’t actually required by employment law, it is something that all employers should take into account.

When preparing a response, take some time to think about what you really want in the settlement. Give careful thought to the best case scenario.

At the same time, think about your worst case scenario. What’s your bottom line for an acceptable settlement? If you’re able to answer these questions, you’ll be much better placed to begin the settlement agreement negotiation process.

2. Have a Protected Conversation with your Employer

Your employer should ideally make the settlement offer in the context of a protected conversation.

That allows both you and your employer to speak freely without worrying that what they say could be used against them.

If your employer doesn’t invite you to a protected conversation, you may want to ask for one yourself. This signals to your employer that you’re taking matters seriously and that you want to make sure the process is conducted correctly.

3. Consider what incentive the employer has for improving the settlement offer

Why should your employer offer you more? Why should they pay you what you’re asking for?

Most companies won’t want to pay staff any more than the law requires. You need to consider what incentive your employer has to pay you a higher financial settlement. Why should they be open to negotiation?

For example, it may be that, if you refuse the proposed agreement, you could claim compensation in an Employment Tribunal. The incentive to pay you more money is that, in return, you will agree not to pursue any legal claim.

The prospect of agreeing a settlement agreement instead of defending an Employment Tribunal claim is attractive for the employer because:

  • it’s cheaper (the costs of a settlement agreement are usually much lower than paying legal fees to go to an employment tribunal)
  • it’s quicker (a tribunal claim will take several months or even years – a settlement agreement can be concluded in a few days)
  • it provides certainty (neither party can be sure what the outcome will be in an employment tribunal)

A settlement agreement is often a better option than an Employment Tribunal claim for you as an employee as well.

4. Don’t ask for too much

You may have heard in the news about former employees being awarded enormous amounts of money by an Employment Tribunal. You should not presume that you will get the same.

There are a number of factors that determine how much you should reasonably expect in a settlement. The most important ones are:

  • Your salary
  • How long it is likely to take you to find another job
  • How long you have been employed
  • Any terms in your contract that you entitle you to an enhanced sum
  • Whether you’ve experienced discrimination and the impact that has had on you

Some of these calculations may need to be estimates (for example, you don’t know how long it will take you to find another job). However, be reasonable in your assessment. Don’t exaggerate or you will lose credibility.

There’s no harm in making a counter-offer that is at the top end of what you can reasonably expect. After all, your employer is likely to try to negotiate down. However, if you ask for too much, your employer is unlikely to take you seriously.

5. Don’t ask for too little

Some employees are embarrassed about asking their employer for more money. They don’t want to ask for a large amount of money, even if it’s reasonable. This may be because:

  • they don’t want to appear selfish or money-grabbing
  • they’ve had a good relationship with their employer and feel a level of loyalty
  • they feel that asking for more money may break an otherwise healthy relationship with their employer

However, this could lead to you getting less than you should. This may mean that you experience financial difficulties unnecessarily.

Be confident in asking for what you’re entitled to. Be respectful and courteous in your communications but don’t sell yourself short. Be prepared to justify why you’re asking for a certain sum of money. For example, you could explain to your employer the difficulties you will face as a result of losing your job and how long it’s likely to take you to find another one.

If you’re nervous about asking for more money, you may want to read this article about negotiation.

6. Consider how the settlement payments will be taxed

Make sure you understand the tax position when considering a settlement offer. Otherwise, you may find you don’t receive as much money as you expected.

The tax status of the various financial amounts in a settlement agreements depends on the nature of the payment.

As a general rule, a termination payment is tax free up to £30,000. This includes any redundancy payment.

However, most other payments are taxable. This includes any payment in lieu of notice.

For more information about how HMRC views termination payments, read this article about settlement agreement tax.

7. Preserve good will if you can

In some circumstances, you may not have any commercial or legal leverage to persuade your employer to pay you more money. In other words, the law does not require them to pay you any more than they are already offering in the proposed agreement.

This is most likely to be the case where there’s a genuine redundancy situation and there is no other option but to terminate your employment.

However, it may be that you can get a better offer by doing the settlement agreement negotiation on the basis of good will. There may not be any commercial incentive for them to pay you more money but they genuinely want to be helpful to you and show gratitude for your hard work.

Your grounds for settlement negotiation may include factors that an Employment Tribunal would not take into account. This may include:

  • The fact that you’ve contributed a lot to the business
  • The difficult situation that you will be in as a result of losing your job
  • The sacrifices that you have made in your personal life to benefit the company

This approach often works better with smaller companies where there’s a family feel to the business. If however, you don’t have this kind of relationship with your employer, this approach to negotiation may not be appropriate.

8. Consider non-financial matters

In many cases, the most significant aspect of a settlement is the termination payment. The amount of money you receive is clearly going to be important, particularly if your employment is coming to an end.

However, there are other factors that you should take into account when negotiating.

For example, a settlement agreement is a good opportunity to agree a fantastic reference with your employer. There is no law requiring an employer to give a reference. However, even if your employer is unable or unwilling to pay you more money, it won’t cost them anything to provide you with a positive reference. This can then be annexed to the agreement.

If your employment contract contains clauses that prevent you from working for a competitor or dealing with your employer’s customers. You may want to ask for a clause in the settlement agreement that releases you from those restrictions. This will help you in your search for alternative employment.

Some employers provide outplacement support. This usually consists of guidance with finding another job, assistance with preparing a CV and help with interviews. The aim is to prepare you for the job market. You may want to ask your employer to include this as part of the agreement.

Other benefits you could ask for may include:

  • Keeping your mobile phone or at least having the number ported over
  • Being allowed to continue using your company car for a certain period
  • Agreeing an announcement that will be made to your former colleagues when they’re notified that you’re leaving

9. Speak to a solicitor early on

Many employees will try to negotiate a better settlement with their employer before getting legal advice.

Employment law doesn’t require you to get independent legal advice until the point of signing. However, if you’ve already reached an agreement in principle before you get legal advice, it will be much more difficult for your solicitor to improve the financial amount at a later date.

We recommend that, instead of trying to negotiate the settlement yourself, you ask your solicitor to help you. Many solicitors offer a ‘no increase no fee’ arrangement with clients when negotiating an improved settlement.

Many law firms offer a free initial consultation on a settlement agreement and you should take advantage of that.

Your solicitor will be able to advise you on factors such as:

  • The amount of compensation you should be entitled to in the settlement agreement
  • The most cost-effective way of drafting the document to avoid having to pay tax unnecessarily
  • Whether you have any prospect of an Employment Tribunal claim against your employer and what the value of that claim would be

You will receive advice, not only on the law and the financial amount offered in the settlement, but also other benefits you may be able to achieve.

Would You Like a Free Consultation About Your Settlement Agreement?

If you’ve received a settlement agreement, you’ll need to make sure you receive legal advice on it.

We advise clients throughout the UK. Call us now for a free consultation.

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