Negotiating a Fair Settlement Agreement: Tips for Employees

Being presented with a settlement agreement can feel daunting. The good news? You don’t have to accept the first offer. With the right approach, you can negotiate terms that truly protect your interests.

Understanding the Settlement Agreement Process

A settlement agreement is a formal contract between you and your employer, signalling the end of the road. This usually comes to end a redundancy process or a workplace dispute. It typically involves ending your employment on agreed terms and waiving your right to bring future claims in exchange for compensation or other benefits.

To be legally binding, you must receive independent legal advice (your employer usually covers this cost). ACAS guidance recommends giving employees at least 10 calendar days to review the offer and seek advice.

Why Negotiation Matters

Many employees assume settlement agreements are non-negotiable, but that’s not true. Employers expect some level of negotiation. Before signing, check what you’re legally entitled to – such as statutory notice pay, accrued holiday pay, redundancy pay, and any outstanding wages or bonuses. Your settlement should go beyond these basics to reflect the loss of potential claims and the cost of loosing your job.

How to Negotiate Effectively

Start by taking your time. Never feel pressured to sign immediately; rushing can lead to mistakes. Prepare your case by understanding your rights and documenting any relevant issues, such as unfair treatment or discrimination, which may strengthen your position. Be clear about your priorities – whether that’s a higher financial settlement, a positive reference, or fair restrictive covenants.

If Negotiations Stall: Mediation and ADR Explained

Sometimes, direct negotiations with your employer reach a deadlock. That doesn’t mean your only option is an Employment Tribunal. Before taking that costly and stressful route, consider mediation or other forms of Alternative Dispute Resolution (ADR).

What is Mediation?

Mediation is a voluntary and confidential process where an independent, impartial mediator helps both parties find common ground. The mediator doesn’t take sides or make decisions, they facilitate constructive dialogue and shuttle between parties to explore solutions. Unlike a tribunal, mediation is informal, flexible, and focused on preserving relationships. It can be used at any stage of a dispute, and outcomes are agreed by both sides, not imposed by a judge.

Mediation is usually faster and less stressful than litigation. It remains private and confidential, with no risk of information being used later in court if the matter escalates. It’s also more cost-effective compared to tribunal hearings.

Where to Find a Mediator:

• Acas offers free early conciliation and mediation services;
• The Civil Mediation Council provides a directory of accredited workplace mediators;
• Specialist providers such as MediatorHub and Independent Mediators also offer nationwide coverage.

What is ADR (Alternative Dispute Resolution)?

ADR refers to processes that resolve disputes without a full tribunal hearing. In employment cases, common ADR methods include:

• Early Conciliation via Acas – mandatory before filing most tribunal claims.
• Judicial Mediation – a trained employment judge acts as a neutral mediator during tribunal proceedings.
• Judicial Assessment – a judge gives an impartial evaluation of each side’s case to encourage settlement.
• Dispute Resolution Appointments – where a judge provides a realistic assessment of likely outcomes.

ADR can save time, money, and stress, and often leads to creative, mutually acceptable solutions. It’s worth exploring these options before committing to a lengthy tribunal process.

Key Terms to Focus On

When negotiating, pay attention to:

• Payment structure: Ensure tax efficiency. For example, the first £30,000 of qualifying termination payments may be tax-free.
• References: A fair and accurate reference can be crucial for your next role. You may request to draft it yourself or opt for a basic reference if disciplinary issues exist.
• Departure announcements: Particularly important for senior employees.
• Restrictive covenants: Check that any post-employment restrictions are reasonable and won’t hinder your future career.

Special Considerations for Directors

If you’re a director, make sure the agreement addresses resignation from directorships, continued coverage under Directors’ and Officers’ liability insurance, and the employer’s obligation to file necessary paperwork with Companies House. These steps protect your interests after leaving the company.

What If You’re Unhappy With the Offer?

If the terms don’t feel fair, don’t sign. Signing too soon waives your rights. Instead:

• Seek independent legal advice.
• Make a counteroffer; employers expect negotiation.
• Highlight any potential claims, such as unfair dismissal or discrimination, to strengthen your position.
• Consider alternatives. If negotiations fail, you can pursue an Employment Tribunal claim, but weigh the stress and time involved.

Final Checklist Before Signing

Before agreeing, ensure:

• All payments are clearly detailed and timed.
• Confidentiality clauses work both ways.
• Restrictive covenants are fair.
• You’ve received specialist advice on pensions, shares, or tax matters.

Our Settlement Agreement Lawyers Are Ready to Help

Negotiating a settlement agreement can be complex, but you don’t have to do it alone. Our experienced employment law specialists will guide you through every step, ensuring you understand your rights and get the best possible outcome.

Contact us on 01619269969 or employment@mlplaw.co.uk if you need our help with settlement agreements.