How to Negotiate a Settlement Agreement

To negotiate a settlement agreement effectively: understand the strength of your legal claims first, separate what you are owed from the genuine compensation, decide your target and walk away figures, respond in writing without accepting the first offer, and let an employment solicitor handle the back and forth. Employers expect negotiation. The opening offer is rarely the best one available.

Most people's instinct on receiving an offer is either to accept quickly out of relief, or to reject it out of anger. Both are mistakes. A settlement agreement is a commercial negotiation, and like any negotiation, preparation and leverage decide the outcome. Here is how to approach it.

Deen & Co negotiate settlement agreements on behalf of employees every week, and your employer usually pays our fee. See our fees.

Step 1: understand your leverage before you say anything

Your negotiating power comes almost entirely from one thing: the strength of the claims you could bring at an employment tribunal. The employer is paying you to give up the right to sue. The more likely you would win, and the more it would cost them to fight, the more they will pay to avoid it.

Ask yourself honestly:

• Do I have a realistic claim for unfair dismissal? (This currently usually requires around two years' service, though UK unfair dismissal rules are under reform, so check the current position.)
• Is there any discrimination (age, sex, race, disability, pregnancy and so on)? Discrimination claims have no service requirement and no cap on compensation, so they carry serious leverage.
• Have I raised concerns that could amount to whistleblowing?
• Was the process (redundancy consultation, disciplinary, performance) followed properly?

If you have a strong claim, you negotiate from strength. If you do not, you are negotiating on goodwill and speed, still worth doing, but with realistic expectations.

Step 2: work out your numbers

Before you counter, know three figures:

• What you are owed anyway: notice, salary, holiday, earned bonus. This is your floor. Never accept an offer that dresses this up as compensation.
• Your target: a realistic best case, informed by your claims and length of service (often one to six months' extra pay, sometimes more).
• Your walk away: the minimum you would accept rather than pursue a grievance or tribunal.

Knowing these before you engage stops you being anchored to the employer's opening number.

Step 3: do not accept the first offer

Opening offers are opening offers. Employers routinely leave room to move, partly because they expect you to negotiate. Responding with a reasoned counter almost never makes things worse, because the offer is already on the table because they want you gone quietly.

A calm, professional counter signals you understand your position and you are prepared to hold out. That alone often improves the deal.

Step 4: ask for more than money

The cash matters, but a good negotiation improves the whole package. Things worth pushing for:

• A higher ex gratia (tax free) compensation payment.
• An agreed reference, ideally a factual reference annexed to the agreement, so it cannot be watered down later.
• A longer notice or a later termination date to keep you on payroll and benefits.
• Payment of your legal fees (usually included, but confirm the amount is enough).
• Removal or relaxation of restrictive covenants so you can work freely afterwards.
• Retention of equity, share options or bonus you would otherwise forfeit.
• An agreed internal announcement and confidentiality that runs both ways.
• Outplacement support or continued benefits (for example private medical) for a period.

Non cash terms are often easier for an employer to concede than cash, and can be worth just as much.

Step 5: put it in writing, and mind the without prejudice rules

Keep your negotiation in writing where you can, so terms are clear. Note that settlement discussions are usually without prejudice, or fall under protected conversations (section 111A of the Employment Rights Act 1996), meaning they generally cannot be used against either side at a tribunal. That protection has limits, for example it can fall away where there is improper behaviour, which is another reason to have a solicitor manage the correspondence.

Step 6: let a solicitor do the talking

You need independent legal advice for the agreement to be binding anyway, so involving a solicitor early costs you little and gains you a lot:

• A solicitor can make robust points on your behalf without damaging your working relationship, useful if you are still employed.
• They know what similar cases settle for, so your counter is credible.
• They spot the clauses that quietly cost you money (tax structure, covenants, indemnities).

Common mistakes to avoid

• Accepting immediately because you are relieved or upset.
• Negotiating angry. Emotional emails weaken your position.
• Ignoring the tax structure and losing thousands to poor drafting. See Settlement Agreement Tax.
• Giving away restrictions for free.
• Missing the reference. Get it agreed and attached, not promised verbally.
• Blowing a deadline. You are entitled to reasonable time to consider (the Acas Code suggests a minimum of 10 calendar days), so do not let yourself be rushed, but do not sit on it either.

The bottom line

Negotiating a settlement agreement is about knowing your leverage, knowing your numbers, and refusing to treat the first offer as final. Push on the compensation figure and the non cash terms, keep it professional and in writing, and let a solicitor carry the negotiation. The upside is almost always worth it, and it usually costs you nothing.

Thinking of countering an offer? Deen & Co will assess your claims, tell you what your case is realistically worth, and negotiate for you, funded by your employer in most cases. Speak to our employment team.

Related reading: How Much Should You Get in a Settlement Agreement?, Should You Accept a Settlement Agreement?, Settlement Agreement Tax.

FAQ

Can you negotiate a settlement agreement? Yes. Settlement agreements are negotiable, and employers usually expect a counter offer. The opening figure is rarely the best available, especially where you have credible legal claims.

How much more can you negotiate on a settlement agreement? It varies with your leverage. Increases of a few thousand pounds up to several months' additional pay are common where there is a strong underlying claim.

Should I negotiate a settlement agreement myself or use a solicitor? You need independent legal advice for the agreement to be valid anyway, and a solicitor can negotiate on your behalf without harming your working relationship, usually at no cost to you, as the employer contributes to fees.

This article is general information, not legal advice. Speak to a qualified employment solicitor about your situation.

We negotiate these agreements every week for City and Canary Wharf professionals and for employees across Birmingham.