Negotiating a Fair Settlement Agreement: Key Points to Consider

Deciding whether to negotiate settlement agreement terms can be challenging, particularly if you have not encountered such an agreement before. Understanding what is reasonable in terms of compensation, confidentiality, and post-employment restrictions is essential to protecting your rights and future opportunities.

This article provides a framework to help you assess key considerations and make informed decisions during the negotiation process.

The Starting Point

A good place to begin is by considering why you have been offered (or why you proposed) a settlement agreement. Settlement agreements arise in various employment scenarios, such as redundancies, grievances, capability processes, personality clashes, Employment Tribunal claims, or by mutual agreement.

The circumstances leading to a settlement agreement can shape the parameters of the negotiations.

What Is Reasonable?

What constitutes ‘reasonable’ will vary for each case and often depends on the employer’s resources versus the risks they may face if no mutual agreement is reached. For example:

• Redundancy Situations: If you have at least two years of service, your termination payment will include, at a minimum, your statutory redundancy payment. This is calculated using a formula based on age, employment dates, and gross salary. In genuine redundancy cases, an employer’s financial position may limit the scope for additional payments.
   
• Voluntary Redundancy Schemes: Participating in a voluntary redundancy scheme may result in a more generous package. By agreeing to leave early, you help the company reduce costs and avoid the time and expense of a compulsory redundancy process. Depending on the employer’s financial health, there may be room for further negotiation on your termination payment.
   
• Potential Tribunal Claims: If there is a prospect of pursuing a tribunal claim, and your employer believes you have a reasonable chance of success, they may weigh the merits of your claim against their defence. This could prompt them to take a commercial approach and allocate resources to settle rather than proceed to a tribunal.

Beyond the Termination Payment

In addition to financial compensation, other terms such as confidentiality or post-termination restrictions may be negotiable:

• Confidentiality Clauses: These typically require employees to keep information about their employer and the existence and terms of the settlement agreement confidential. Exceptions often include immediate family, professional advisors, or authorities. It is reasonable to request mutual confidentiality so that the employer also owes a duty of confidentiality to the employee.
   
• Post-Termination Restrictions: Employers may seek to enforce restrictions after employment ends. However, in some situations—for example, redundancy involving a short-term employee or a junior role - it may be possible to negotiate a reduction or removal of these restrictions.

Risks of Negotiating

Negotiating always carries the risk that your employer might withdraw the settlement agreement offer or reject your counterproposals. This is why it is essential to obtain legal advice to navigate these risks effectively.

Since employees must obtain legal advice before signing a settlement agreement, our team provides practical, realistic guidance tailored to your circumstances. We help you understand what terms may be appropriate and achievable.

Get in Touch

For expert assistance with your settlement agreement, contact our Employment Litigation team. Our experienced solicitors offer tailored advice to help you achieve the best possible outcome. Call us on 023 8063 9311 or email enquiries@warnergoodman.co.uk.