What is a settlement offer, and how should they be used? A practical guide for employees

A settlement offer, in an employment context, is a communication sent by an employer to an employee (or vice versa) in which terms of settlement are set out in order to avoid one party bringing a claim against the other (normally a claim by the employee against the employer). In this practical guide, we explore its definition and questions frequently asked by employees.

What is a Settlement Offer?

Employers may offer a settlement during an ongoing dispute or to bring someone’s employment to an end under mutually agreed terms. Typically, this entails the employer providing the employee a payment and non-financial benefits. In exchange, the employee will forgo their right to make an employment tribunal claim. Once an offer has been agreed, it becomes a legally binding contract.

How is an Offer of Settlement Made?

An offer of settlement could be made by an employer orally or in writing. Despite this, requesting the settlement offer in writing is a good idea if this hasn’t been provided already. That’s because it enables the employee to analyse the offer with their solicitor before acting on the offer made.

Why Would an Employer Offer a Settlement Agreement?

An employer may offer a settlement if they have an existing dispute with an employee. Usually, this is because it prevents the employer from facing lengthy legal action that could become costly. Additionally, resolving the dispute swiftly could prevent the employer’s reputation from being damaged.

Alternatively, the employer could offer a settlement to avoid redundancy processes. This is because said processes can be lengthy, and settlements can bring individuals’ employment to an end more quickly.

How to Ask for a Settlement Offer?

If an employee wants an offer of settlement, they could ask their employer if they’re willing to negotiate towards one. This could occur orally or in writing, but it’s recommended the employee writes a letter outlining their wishes clearly.

Furthermore, before initiating such correspondence, it may be advisable to request that it be “without prejudice”. This would prevent eligible correspondence from being used as evidence in court should negotiations break down. Read our article to learn more about “without prejudice” correspondence.

How to Write a Settlement Offer Letter

Employees who wish to write a settlement offer letter to their employer must incorporate specific details. This includes introducing their intentions, outlining the facts and specifying the terms they want to settle on. It’s also worth highlighting their desire to avoid legal action through a quick resolution.

How Should you Respond to an Offer?

Where an employee is provided an offer of settlement, their next steps will differ from those had they offered it. As the title suggests, the employee will be responding to an offer, not making one.

Despite this, the employee will be in a favourable position since the employer has shown willingness to negotiate. In response, the employee should address the facts in the offer letter and begin negotiations concerning the settlement terms.

How to Draft a Response to a Settlement Offer

An employee’s response to an employer’s offer to settle should include three key elements:

  1. An introduction – whereby the employee expresses their sadness at the prospect of their employment being terminated. The key here is to create goodwill to influence the employer into offering a favourable settlement.
  2. An analysis of the facts – correcting errors with the employer’s account of what’s happened. Employees should look to defend their position without becoming hostile, evidencing their version of events. Drafting this section correctly will show the employer that the employee has a case and won’t be pushed aside easily.
  3. A resolution – outlining the terms the employee wishes to settle on. The employee should consider the terms already offered and provide a counteroffer. There’s potential that the original offer can be improved, so consider what might be reasonable and offer slightly more. This will allow for negotiations to bring the offer down to the expected reasonable level.

What is a Reasonable Settlement Offer?

A reasonable settlement offer will differ depending on an employee’s circumstances. From the dispute background to the employee’s negotiating power, the offer’s value would vary on a case-by-case basis.

Should an employee need clarification on the value of their settlement, they should seek legal advice. Solicitors have experience dealing with similar cases and could advise on a reasonable offer.

What Should you do if your Employer Won’t Negotiate?

If an employer appears unwilling to negotiate, it may be time to take a more assertive approach. Whilst remaining professional, the employee could outline the possible claims associated with the dispute, including their value. They should emphasise their desire to avoid legal action and hope to receive an offer reflective of the claim’s worth.

Here, the employee should show their desire to settle but highlight legal action is possible if the offer isn’t reasonable. The key is to remain professional and demonstrate a willingness to settle whilst outlining the strength of one’s negotiating position.

How to Try and Squeeze a Better Offer of Settlement from Your Employer

Should an employee know what a reasonable settlement offer for their dispute is, they will understand where to begin negotiations. After starting somewhere above this point and likely being negotiated down, they should consider where their employer is most flexible.

For example, following negotiations, it may be apparent that they’re unwilling to move on the figure concerning notice pay. However, improving a different element of the settlement could be possible. It may be that the cost contribution figure, the amount the employer puts towards the employee’s legal fees, could be increased. If this occurs, the employee will have negotiated a better overall offer of settlement.

There’s also the consideration that the employee could negotiate non-financial benefits. This could include an agreed reference for future employers or being able to keep company equipment. Again, adding such terms would enhance the overall offer.

What is a Full and Final Settlement Offer?

Regular offers to settle usually relinquish an employee’s right to pursue specific claims associated with a dispute. However, a full and final settlement offer essentially surrenders an employee’s right to pursue any claims against their employer, now or in the future. There are some exceptions, but these are limited to:

  • Personal injury claims that the employee wasn’t aware of
  • Claims to enforce this agreement
  • Accrued pension entitlement claims

What is a Reasonable Full and Final Settlement Offer?

Again, a reasonable full and final settlement offer must be determined individually, factoring in personal circumstances. Since the employee effectively relinquishes all rights to claim, seeking legal advice early is even more critical.

How will a Full and Final Settlement Offer be Made?

Said offer would be made in writing, outlining that it is full and final. This could be prominently displayed on the document or contained within the terms of the offer. Therefore, reading any offer carefully is essential to ensure such terms aren’t missed.

Accepting an Offer – Know When to Keep Negotiating and When to Accept

Should the offer be close to what’s reasonably expected, it’s probably wise to accept. Failure to do so could risk negotiations breaking down. However, supposing there’s a disparity, employees might be advised to continue negotiations.

After a few rounds of such negotiations, the terms the employer is willing to negotiate will become clear. It’s best to focus on these areas, as pushing for terms the employer won’t budge on could again cause a breakdown.

How to Accept an Offer of Settlement

Employees can only legally accept a settlement offer once they’ve been advised by a solicitor, who has signed it off. If employees want to take their offer, they should write to their employer, explaining they will accept ‘subject to contract’.

This informs the employer of the employee’s intent but doesn’t finalise the deal. This is crucial as it enables the employee and their solicitor to carefully review the offer before finally accepting.

What Happens if you and your Employer Just Can’t Agree on an Offer?

Supposing the offer of settlement negotiations broke down, it could be time to consider claiming to an employment tribunal. The employee must undertake ACAS early conciliation before proceeding with their claims. However, contacting an employment law specialist before acting is recommended.

We hope we have answered your questions about settlement offers. If you have further questions or want help negotiating your settlement, contact Redmans Solicitors now. We are employment law specialists and can advise on how you could proceed.

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  • Phone us on 020 3397 3603
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