How to get a good deal in a settlement agreement

If you’re thinking about trying to reach a settlement deal with your employer, it can be hard to know how much to settle for.

It’s super important not to underestimate your ability to negotiate with your employer to get a good deal. At the same time, you need to be realistic about the ballpark figure you can ask for.

In this article, we’ll talk you through how to get a good deal. This article is for you whatever your situation is - whether your employer has already offered you a settlement agreement, or you’ve only just started thinking about kicking off settlement negotiations for the first time.

If your employer has offered you a settlement agreement

If you’re having a tough time at work, or if there is a redundancy process, your employer might come to you to offer you a settlement agreement. 

They might do this in what’s called a “protected conversation” or a “without prejudice conversation”.

If this happens, you might be wondering how to play things. Here are some things you should know to help you get started.

You’ll get independent legal advice

For a settlement agreement to be binding, you need to get independent legal advice on it. You should feel empowered to tell your employer that you will take advice, think about what they are offering, and come back to them in due course.

Read our guide on settlement agreements to learn more.

You don’t have the accept the first offer

You shouldn’t feel pressured into accepting the first offer that your employer gives you. You want to make sure that you can get as good a deal as possible.

Don’t be afraid to go away and think about your counter-offer. You may find that it actually takes a few rounds of negotiation before you are able to reach agreement.

Don’t be held to a deadline

Don’t let your employer hold you to an artificial deadline to respond to their offer. If they do this, it’s likely that it is just a tactic to try to persuade you to sign as soon as possible without negotiating the terms.

If you are thinking about starting settlement negotiations

If your employer hasn’t yet offered you a settlement agreement, then you need to take the first step to get one negotiated.

Don’t worry - you don’t have to write the agreement yourself! Often your employer will produce the first draft, and in any case, you’ll get legal advice on the terms of the agreement once that is prepared. To get things started, let your employer know that you want to settle, using a “without prejudice” letter. Ideally, in this letter, you should write down the terms you would be prepared to accept. 

If you don’t have a specific number in mind at this point, that’s ok too - you can leave this out of the letter. However, it’s still a good idea to do some maths before sending the letter, so that you have a ballpark idea of where your bottom line is before starting negotiations.

Where should I start?

Like any negotiation, it’s often a good idea to start a bit higher than you would be prepared to accept. However, don’t go over the top or you risk your employer not engaging with you at all.

Also, keep in mind that your employer is most likely to want to agree to a settlement at a level that roughly mirrors their financial risk. This includes what an Employment Tribunal might order your employer to pay you if you made a successful claim against them, and their legal fees in defending a claim.

 With that in mind, your starting point for knowing how much to ask for in a settlement agreement should be to think through the following questions.

• What might an Employment Tribunal give you if you made a successful claim? 
• What chance of success might you have at Tribunal?
• Are there any non-financial terms that you’d like to ask for?
• Finally, what is your gut feeling about a good ballpark figure from your point of view? In other words, how much would you ultimately be prepared to settle for?

How to calculate your settlement figure

Ex gratia payment

A great thing to try and get under a settlement agreement is an ‘ex gratia’ payment. ‘Ex gratia’ comes from the Latin - it means ‘from favour.’ The idea is that your employer is paying you a sum of money that they are not contractually obliged to pay you under your employment contract.

It’s quite common to include an ‘ex gratia’ figure in the settlement agreement. It’s basically a figure that your employer agrees to pay by way of compensation for what has happened to you. 

How can I get my employer to agree to an ex gratia payment? 

By paying you this sum of money, your employer isn’t admitting to any wrongdoing. From their perspective, however, it means that they are effectively paying you a bit extra to drop your claim or potential claim. This means that they’ll normally take into account how likely they think you are to succeed in an Employment Tribunal case, how much it will cost them to defend it, and what your compensation might be if you win. 

For a lot of employers, the threat of having their name in a public judgment, with the Tribunal potentially publicly criticising how they have behaved, is another important consideration for them. By paying an ex gratia payment, they get the chance to avoid that.

All of this means that in many ways, it is in your employer’s interests to agree to an ex gratia payment. They have a lot at stake and if this is what makes the issue go away for them, they will often be prepared to do so. 

How should I calculate my ex gratia payment?

If you’re looking to agree to an ex gratia payment, there are no guidelines or limits to how much this might be. However, you should take into account things like:

• your loss of earnings
• if it’s an unfair dismissal situation, your potential basic award
• if it’s a discrimination situation, your potential injury to feelings.

This isn’t an exhaustive list and you should make sure you do some research into the specific employment claims that you might be able to make. Use our ‘Legal Research’ and ‘Goal’ pages in the Valla platform to help you do this. 

Contractual payments and other financial terms

Does your employer owe you any money under your contract, or are there any other financial terms you want to ask for? If so, you’ll want to include this in your settlement deal. This includes things like:

• holiday pay
• notice pay
• redundancy pay
• bonus
• a contribution to your legal fees
• any other financial issues or other benefits, like a company car or company property, that you would like covered.

How should I ask for different types of compensation?

When you are speaking with your employer, it’s a good idea to actually break down the categories of the different types of compensation you are asking for. For example, if you want £100 for unpaid holiday pay, and £5,000 as an ex gratia payment, then make that clear so that your employer can understand where each figure has come from. This will be important when the settlement agreement itself is drafted, as there are different tax implications for different types of payments.

Non-financial terms

As part of your settlement agreement, do you want any non-financial terms? For example, you might want:

• an agreed reference
• an agreed announcement to your colleagues or clients
• a clause to prevent your employer making derogatory comments about you (it’s common to include this as a mutual obligation). 

Also, think about what else you can offer your employer to sweeten the deal for them. For instance, can you offer to help with handover of projects you are involved in, or can you agree to restrictive covenants if they are worried about you taking business away from them?

Use Valla to get a good deal on your settlement agreement

Considering a settlement agreement? Dive deeper with our recorded webinar on how to settle with your employer to get the best deal possible.