Settlement agreement negotiations – 10 top tips for employees

Are you trying to negotiate a settlement agreement, or looking for assistance with a settlement negotiation?

If your employer has made an offer of a settlement agreement (or compromise agreement) to you then it is normally a good idea to try and negotiate the terms – simply put, if you don’t ask, you won’t get. Moreover, most employers will expect you to make a counteroffer.

Here are a few tips and tricks from Chris Hadrill , Partner in the employment team, to consider when negotiating your settlement agreement, drafted up by our expert employment lawyers

1. Prepare for the negotiation properly

Once you are made aware that your employer wishes to make an offer of settlement to you, you should think carefully about how you want to respond. Don’t rush back immediately with a counteroffer; take some time to plan what outcome you want to achieve and how you think it is best achieved.

Think about your objectives

What are you looking to achieve from the settlement negotiations process? Think about your best-case scenario, and what terms that would entail, and then think about the range of offers you would be prepared to consider in making a deal with your employer – fixating on only one outcome will likely lead to disappointment, and having a range of ‘values’ that you’d be prepared to consider will give you flexibility when deciding what offers to accept.

When thinking about objectives, you’ll almost always need to consider the following (among others):

What will the termination date of your employment be?
What is your notice period , and how will this be dealt with? (e.g. worked out, paid in lieu, but on garden leave)
How much holiday pay will you have accrued to the termination date?
Are you owed any bonus or commission? If so, how should this be dealt with?
Crucially, what value of compensation do you want in order to enter into a settlement agreement?
Are you bound by any post-termination restrictions? If so, what will their effect be and what do you want to do about them?
What type of reference will your employer agree to?
Will an announcement be made about your departure? If so, what will it say?

Check your contract of employment

Make sure you obtain a copy of your contract of employment (and any changes that have been made to it) in order to understand what your contractual rights and obligations are, such as (please note that this list is not exhaustive):

If you’re entitled to a bonus, what are the contractual terms of that bonus?
If you are entitled to a commission, what are the terms on which the commission will be paid?
What notice period are you entitled to?
How will a payment in lieu of notice be dealt with?
Is there a non-compete clause?

Understanding these key issues will allow you to ensure that you understand what leverage you have (and don’t have), and that there are no surprises for you – you don’t want to try and play a weak settlement hand in an overly strong manner, and vice versa.

Properly review the settlement agreement

This may seem obvious, but take the time to sit down and review the settlement agreement template that your employer has sent you. These contracts are drafted, in the main, in a ‘layman-friendly’ way, and where there are clauses that you don’t understand take note of this and address it with your employment solicitor – it’s your employment solicitor’s job to ensure that you properly understand the terms of your agreement, as well as the settlement agreement process, and they should be able to answer any questions that you have on it.

2. Avoid resigning before negotiating, unless absolutely necessary

In general (but not always), resigning before you’ve started (or finished) negotiations is not a good idea as it reduces the leverage that you have over your employer and can increase the risk that you are left with the sole option of bringing an Employment Tribunal claim – simply put, if your employer is offering you a settlement agreement then they will (almost) always be looking to terminate your employment, and if you resign from your job you’re just doing what they were seeking to do to you anyway.

Staying on the job until the negotiations are complete means that your employer will be devoting time and resources to dealing with your matter, and there is normally an objective cost to this that your employer will, rationally, want to avoid.

3. Ask for an ‘off the record’ conversation

Don’t always wait for your employer to put the first foot forward with a settlement – if you’re aware that your employer is about to offer you a settlement, or you have already received an offer, be proactive and try and negotiate the settlement yourself (if you feel comfortable in doing so). Ask your employer for a without prejudice meeting (also often known as a protected conversation or ‘off the record’ conversation) and try and negotiate the terms of the settlement with them yourself; alternatively, if you’re not comfortable with doing the negotiations yourself (and, sometimes, employees are not comfortable) then ask your employment solicitor to negotiate for you.

Can I negotiate a settlement agreement?

Absolutely you can and, as below, you should almost always look to negotiate your settlement agreement.

4. Choose who you undertake the settlement agreement negotiations with carefully

Think carefully about who to negotiate with at your employer. If you’re a senior executive with good connections to the Board or senior management then it may be more productive for you to negotiate directly with the Board, or another senior executive – even executives are human, and if you approach them directly you may be able to exercise political connections that can help you negotiate your settlement agreement.

If you don’t have those kinds of connections, or if you’re a more junior employer, you may not have this option, but nonetheless think carefully about who at your employer is likely to be most receptive to your negotiation strategy – it could be a friend of yours in human resources, or your line manager, or someone else. Being smart about who you approach can help to get you the most favourable settlement agreement.

5. Choose how you negotiate carefully

It is a good idea to carefully calibrate how you negotiate to suit the situation – you don’t want to be overly aggressive if your case is weak or your employer is short-tempered, and you don’t want to be too meek if you have a good case (or if your employer is afraid of the repercussions of not settling the matter). Talk to your family, talk to colleagues and advisers, and then decide what the best strategy for your negotiating position is.

(Almost) always negotiate

There’s generally no harm in negotiating as, in most circumstances, the reasonable worst-case scenario if you negotiate is that your employer will simply re-state their original offer – employers can withdraw a settlement offer, but such a situation may be unusual. Remember, if you don’t ask, you don’t get – it’s normally a good idea to try and maximize the settlement package.

What do you want from the settlement agreement negotiation?

As detailed above, make sure you have a comprehensive list of what you want from the negotiations and try and stick to it.

What does your employer want from the negotiation?

Once you start negotiating with your employer you’ll be able to understand what their ‘red lines’ are – go through 2-3 rounds of the settlement agreement negotiations process and see what issues fall away and what remain.

Take good notes

It is quite simple to forget what you may have discussed/negotiated in a meeting, so make good, contemporaneous, notes of what was discussed. Ideally, and if appropriate, email those notes to your employer to ensure that they’re agreed upon.

Know when you’ve got the best deal

The rule of thumb that we tend to use, although this is not a universal rule, is that once you’ve undertaken 2-3 rounds of negotiations with your employer you start to see where the ‘red lines’ are for your employer. Once you’ve reached their best and final offer it can be counter-productive, or at the least inefficient, to try and negotiate any further.

Know when to stop and take the deal being offered, even if it is not perfect. A specialist settlement agreement solicitor should be able to help you understand what the best possible outcome is, once the initial negotiations have been undertaken, and whether to continue to negotiate or, alternatively, withdraw from the negotiations and look at an Employment Tribunal claim.

6. Understand the terms of the settlement agreement

Again, and as detailed above, it’s key that you understand what the terms of your settlement agreement are – you don’t want to sign a contract that you don’t understand and then be bitten by this at a later date. Take the time to review, and understand, your draft settlement agreement properly.

7. Do your research on settlement agreements

It’s your employment solicitor’s job to advise you on what potential Employment Tribunal claims you have, the settlement agreement negotiation process, and what strategy to employ when negotiating a settlement agreement. However, it certainly doesn’t harm for you to have a good knowledge of the area of law that is relevant to your matter, so you can fully understand what arguments your lawyer is trying to make. You don’t have to be an expert, but a basic understanding of the area of law in question can go a long way.

8. Talk to current and former colleagues

Talk to your friends and colleagues at work (and, if you can, former colleagues) to see how your employer dealt with employment law disputes (and settlement agreements) previously – if your (former) colleagues are willing to talk to you then they can be a valuable source of information on how your employer has dealt with settlement agreements previously.

9. Take legal advice from specialist employment solicitors

This may seem an obvious (and self-serving!) point, but getting specialist settlement agreement guidance from employment solicitors if you want to negotiate a settlement agreement can sometimes really make a difference. Specialist settlement agreement solicitors should instinctively understand your situation, what arguments to make, and what you should be looking to achieve from your settlement discussions, as well as what your employment rights are. Equally importantly, your employer will normally pay towards the cost of the advice you are receiving if you enter into the settlement agreement, so that advice may not cost you anything.

10. Be realistic

Finally, and crucially, don’t make wild offers to your employer as doing so can not only hinder but destroy, the possibility of a negotiated exit. Do your research, take good advice, think carefully about your situation, and take strategic steps to obtain the best settlement offer possible in your situation.

If you would like to receive some legal advice on your employment dispute or settlement agreement then please call our expert settlement agreement solicitors on 020 3397 3603 or email us