Employed Less Than Two Years? This Affects Your Settlement Agreement

“What date did you start your employment?”

That’s one of the first questions I ask any employee who’s been offered a settlement agreement.

The amount of time you’ve been employed (known as the length of service) has a great impact on your employment rights. In particular, your legal position is much weaker if you’ve been employed for under two years.

What difference does it make to the settlement agreement?

As an employee, you only have the right to compensation for unfair dismissal if you were employed for two years or more. This is known as the qualifying period.

The qualifying period used to be one year but was increased to two years in April 2012.

This means that, during your first two years, your employer is allowed to sack you without a fair reason and you can’t claim compensation.

And so there isn’t much incentive for your employer to pay you any money in a settlement agreement if you’ve been employed for under two years.

Are there any exceptions?

There are a few exceptions to the two year rule.

Certain types of dismissal are automatically unfair, which means that you can claim unfair dismissal, even if you’ve been employed for under two years.

For example, you don’t need a minimum qualifying period to claim compensation if the dismissal was for one of the following reasons:

  • You asked to be released for jury service
  • You were pregnant or have recently given birth
  • You indicated that you were going to take action to enforce a statutory right, such as the right to be paid the National Living Wage

You can see a full list of ‘automatically unfair’ dismissals in the Employment Rights Act 1996.

Are there other claims I could bring, even if I’ve been employed under 2 years?

Although your employer doesn’t need to show a fair reason to dismiss you, they’re not allowed to discriminate against you.

Discrimination means you’ve been treated less favourably because of a protected characteristic, such as race, gender, religion etc

For example, if an employer were to dismiss an employee because of their racial background, that would be automatically unfair. The employee could claim compensation, irrespective of how long they were employed.

This would be a discrimination claim, rather than an unfair dismissal claim. The employee would be entitled to claim damages for lost earnings and injury to feelings.

What about my contractual rights?

If your employer breaches your employment contract, you can claim compensation, even if you’ve been employed under two years.

However your compensation would be limited to your contractual entitlements. Typically, these are:

  • Salary and benefits up to the termination date
  • Notice pay (unless the dismissal is for gross misconduct)
  • Payment for any holiday that hasn’t been taken, calculated up to the termination date

You wouldn’t be able to claim compensation for future lost earnings or injury to feelings.

So why would my employer offer me a settlement agreement?

The purpose of a settlement agreement is for you to give up any claims against your employer. If you’ve been employed under two years, you probably don’t have a claim, unless one of the exceptions applies.

So why offer a settlement agreement? Why doesn’t your employer just terminate your employment? There are several possible reasons.

Playing it safe

Sometimes, employers prefer to be on the safe side.

Even a hopeless employment tribunal claim will cost the employer time and money in defending it.

It’s safer to ask an employee to sign away all their rights, usually in exchange for some kind of settlement payment.

Guilty conscience

Even if your employer isn’t breaking the law, they may feel bad about having to bring your employment to an end. After all, you’ve contributed a lot to the business. Terminating your employment will cause you distress and inconvenience.

Although there’s no legal duty to do so, your employer may feel a moral responsibility to pay you something in a settlement agreement.

A desire to maintain a good relationship

Some employers genuinely don’t want to fall out with their staff, even if they have to let them go.

By offering a settlement agreement, which may include a financial payment as well as a favourable reference, they will be able to show good will and help the employee towards finding another job.

Can you negotiate?

Negotiation is much more tricky if you’ve been employed under two years. Unless you can show that one of the exceptions applies to you, there isn’t much incentive for your employer to pay you more money.

Nevertheless, you may be able to negotiate on the basis of good will. This is likely to work if you can show factors such as:

  • you’ve had a good relationship with your employer
  • you’ve been a hard-working employee and you’ve made a valuable contribution to the business
  • losing your job puts you (and your family) in a very difficult situation
  • you left another job to join your current employer

These are all factors that an employment tribunal wouldn’t take into account. They may however have some leverage with a reasonable employer.

If you do want to negotiate, you will probably find it helpful to ask for a protected conversation with your employer.

For some helpful tips on negotiating, read this article.

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If you have received a settlement agreement, you will need to make sure you receive legal advice on it.

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