Settlement agreements - what they are, and how to get one

Are you thinking about entering into a settlement agreement with your employer? If so, you probably want to know what exactly a settlement agreement is, and how to get one. 

What is a settlement agreement?

A settlement agreement is a formal contract between you and your employer to resolve your workplace problem. Settlement agreements are written down and signed by both of you. You don’t need a court or Tribunal to reach a settlement.

To reach agreement, both sides negotiate what they are willing to do to reach a resolution. This often means one side drafts the contract (usually your employer) and then you send versions back and forth between you until you are both happy with it.

Usually, a settlement agreement means that you are paid a sum of money in return for either:

• not starting an Employment Tribunal claim, or 
• withdrawing a Tribunal claim that you’ve already started.

What does a settlement agreement include?

 A settlement agreement typically includes a combination of things like:   

• a compensation payment (the amount they agree to pay for you to drop the case)
• payment for your notice period
• payment for any holidays
• your employer's contribution to your legal fees (see below)
• an agreed reference that the employer will give for you
• agreements about confidentiality.
  

Read more about how to negotiate the terms of a settlement agreement here.

In what situations can I ask for a settlement agreement?

There are a number of scenarios in which you might be thinking about settling. 

Usually, the best situations to settle with your employer are ones where you have some kind of leverage that you can use to make them want to agree to a deal.

Perhaps you’ve:

• lost your job and think you have a potential Employment Tribunal claim
• been mistreated at work and think you might have a Tribunal claim
• made a Tribunal claim and you want to settle through ACAS Early Conciliation
• been asked to sign a settlement agreement by your employer as part of a redundancy exercise.

It goes without saying that an Employment Tribunal claim is bad news for any employer, for several reasons, not least the potential cost of defending one. 

This gives you a lot of leverage to reach an early deal with your employer. So if you’re in any of these situations, consider whether you should commence “without prejudice” discussions with your employer to start a settlement negotiation. 

When can I settle?

You can settle at any point with your employer - at the informal complaint stage, formal grievance stage, filing a claim stage or even during the Tribunal process itself. It’s worth considering what timing is potentially best for you. 

On the one hand, you may be better off settling sooner rather than later, as this saves you the time and hassle of pursuing things further. On the other hand, if you want to agree to a good deal, it may be best to hold off until further down the line where your employer may be able to see that you have a good case against them and is feeling more pressure. It’s not actually uncommon for cases to be settled at the door of the Tribunal hearing itself.

If you’re trying to settle at the same time as pursuing a Tribunal claim or potential Tribunal claim, then bear in mind that there are strict legal limits on the dates by when you need to do this. Read our article about these deadlines here. 

How should I start settlement negotiations?

Your approach to settling is likely to be slightly different depending on whether you are before or after the stage of contacting ACAS to commence Early Conciliation.

Settling before contacting ACAS

If you and your employer agree to settle before you bring the matter to ACAS, you will typically use a settlement agreement, which is a document negotiated directly between you and the employer (and any lawyers either of you may have). ACAS and any other bodies don't get involved in this settlement agreement.

Requirement for independent legal advice

For a settlement agreement to be binding, you are required to get independent legal advice before you sign it. This would usually be from a qualified lawyer, but it could alternatively be from an authorised trade union representative or advice worker.

Whilst they don’t have to, it’s common practice for employers to offer you a contribution towards your legal fees (typically between £150 - £1,500, but a good rule of thumb is that the employer will pay around £500 plus VAT). Be aware that this may not cover the full cost of your legal fees and is only a contribution. If you’re worried about this, you can always try to negotiate with your employer for a higher contribution. Otherwise, you could speak to some lawyers and see what they might be able to do within your budget, for example, see if they will take the case as far as they can within that budget so that you can take on more of the negotiation yourself. 

Without prejudice letters

If you’re not at the stage of committing to legal fees just yet, and want to firstly see if your employer will engage in any kind of settlement, you can still do this without a lawyer. At Valla, we can help you write a “without prejudice” letter to your employer to start negotiations.

Settling after contacting ACAS

Another option is to settle your claim through ACAS. This is normally the route you would take if you have already contacted ACAS to start Early Conciliation.

If you and your employer agree to settle after you have raised the issue with ACAS, you will typically reach a settlement using an ACAS COT3 agreement document. The big difference between this and a settlement agreement is that the negotiation is facilitated through ACAS rather than directly between you and the employer. In this settlement you are not legally required to receive independent legal advice, but you can still ask the employer to make a payment towards any legal fees you have.

Use Valla to get on track with your settlement

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