How to Negotiate a Settlement Agreement – 5 Top Tips

Settlement agreements are not unusual but they are not often talked about. They are used by employers to ensure the smooth exit of an employee from their business or to settle potential or actual employment tribunal claims. You may not be aware that a colleague or friend who has left their job has done so by agreement. This is because agreements usually contain strict confidentiality provisions to ensure that the contents of the settlement agreement, and the negotiations behind it, remain under wraps.

When surrounded by so much secrecy, it can be difficult to know whether the settlement agreement that you have been offered represents a good deal or not. We are specialists in negotiating settlement packages and are experienced at guiding our clients through the process of ending their employment with a settlement agreement. Here are our insider tips about how to approach a settlement agreement and to achieve the best out of negotiations.

1. Think on your feet

It can be difficult to remember exactly what is said in a meeting where you are offered a settlement agreement. If you anticipate that your employer is thinking about ‘making you an offer to go’, take a notepad and pen with you to any impromptu meetings. It is highly unlikely that your employer would allow you to be accompanied to this type of meeting so take detailed notes if you can.

Don’t be afraid to ask questions but be sure not to commit to anything. Ask them about the reason behind the agreement - is it redundancy, performance or something else? Why do they say your role is redundant or that you have not been performing as well as they’d like? Ask them about how they have calculated any compensation and the tax treatment of what you are being offered.

They may not provide you with a draft agreement straight away so do try to get as much detail as possible on what is being offered to you including proposals on the termination date, compensation payment and how they will deal with accrued annual leave. You may be asked to leave the workplace immediately after the proposal is given to you. If possible, take any payslips, your employment contract, information on bonuses or benefits and other relevant information that you may have printed out and stored at work.

If you don’t manage to take notes in the meeting itself, jot down everything you remember as soon as you can after it has finished.

2. Consider the big picture

It is always helpful in negotiations to consider the employer’s position, for example, do you have information on the financial position of the business and whether they are undergoing a period of change? Consider where the business is heading and how the settlement agreement helps them to achieve their aims, as this can inform your approach during negotiations.

There may well be a history preceding the settlement agreement; a redundancy process, performance reviews or an improvement plan, or perhaps you have been unhappy at work and have raised a grievance. Keeping a diary throughout these processes and examining the employer’s behaviour and how they have handled procedures can be helpful.

3. What’s in it for them?

Settlement agreements usually involve a benefit to the employee by way of a compensation payment but what’s in it for the employer? Understanding the benefit to the employer will help you to assess your bargaining position. 

Employers might use a settlement agreement to achieve an exit with minimum disruption to other staff, to keep the departing employee happy and of course to keep matters confidential. The agreement may also cover the employer’s client details and confidential information and it will require you to waive any potential claims which you may have.

It enables both parties to draw a line under the employment, so it is in the interests of both parties to come to agreement on all the different aspects of the termination and the settlement package. Which brings us to the next point…

4. You don’t ask: you don’t get.

It is helpful to view the settlement offered as a whole and to consider which elements of that package may be negotiable. Bonus payments are one area where we find that there can be some element of negotiation, so it is good to examine policies and entitlements surrounding bonuses and other incentive arrangements. If you have a potential claim in the employment tribunal then it may be possible to negotiate a more favourable compensation payment.

There are some non-financial aspects which can be good to negotiate such as an agreed reference, the termination date and the possibility of garden leave or pay in lieu of notice.

5. What’s the alternative?

In any negotiations, it is helpful to bear in mind the alternative to reaching agreement and how attractive that alternative looks both for you and for the employer. This will inform the approach that you take and will enable you to weigh up the settlement package and consider what’s best for your future.

For all settlement agreements it is essential to take legal advice before signing and employers will usually pay a contribution towards your legal fees. We are experienced in negotiating settlement arrangements and will advise you on the compensation offered, take the stress out of negotiations and help you to make an informed decision about what is best for you. Contact us to arrange an appointment for specialist advice on your settlement agreement.