Can I Negotiate a Settlement Agreement?

If your employer has offered you a settlement agreement, you do not have to accept the first offer.

A settlement agreement is voluntary. You can accept it, reject it or negotiate different terms. In many cases, the payment is only one part of the negotiation.

The more important question is often: what should you negotiate before you sign?

Our settlement agreement solicitors in London advise employees on proposed agreements, negotiations and the legal effect of the terms they are being asked to accept.

1. Can You Negotiate a Settlement Agreement?

Yes.

An employer may present a settlement agreement as a formal offer, but that does not necessarily mean the terms are final.

You can make a counter-offer and propose changes to both the financial and non-financial terms. The employer does not have to accept your proposals. Equally, you do not have to accept theirs.

The important point is to consider the overall package. Does the agreement give you sufficient value in return for ending the employment relationship and giving up the particular legal claims identified in the agreement?

2. What Can You Negotiate?

The settlement payment is usually the obvious starting point, but you should consider the agreement as a whole.

Depending on the circumstances, negotiations may cover:

• the settlement payment;
• notice pay;
• outstanding salary and holiday pay;
• bonuses or commission;
• the termination date;
• an agreed employment reference;
• confidentiality provisions;
• restrictive covenants;
• benefits and company property;
• legal costs; and
• what the employer will say about your departure.

Sometimes a non-financial term can be particularly important.

For example, an agreed reference may matter if you are looking for another job. Changes to restrictive covenants may be important if you intend to join a competitor or establish a competing business.

The headline settlement figure should therefore not be considered in isolation.

3. How Do You Know Whether the Offer Is Reasonable?

There is no universal figure for a reasonable settlement agreement.

An offer that is reasonable for one employee may be inadequate for another.

Relevant factors can include your salary and benefits, length of service, notice entitlement, the reason for the proposed termination, the circumstances leading to the offer, any potential legal claims and the strength and possible value of those claims.

You should also distinguish between money that the employer already owes you and additional compensation offered in return for settlement.

For example, salary already earned, accrued holiday pay or contractual notice entitlement may be different from the additional amount offered to settle potential claims.

This is why simply comparing your offer with what another employee received can be misleading.

4. Should You Make a Counter-Offer?

A counter-offer may make sense where there is a proper basis for seeking better terms.

A useful negotiation normally explains why the proposed package should change rather than simply demanding more money.

For example, an employee might identify a potential legal claim, a disputed contractual entitlement, an unpaid bonus, a notice issue or another aspect of the proposed termination that the employer has not adequately addressed.

The strength of your negotiating position will depend on the facts.

An aggressive counter-offer is not necessarily the most effective approach. A focused proposal supported by clear reasons may have a better prospect of producing an agreement.

5. Can a Solicitor Negotiate the Settlement Agreement for You?

Yes.

A solicitor can review the proposed agreement, identify potentially problematic provisions and explain what signing it would mean.

Where appropriate, your solicitor can also negotiate directly with your employer or its lawyers.

This may be particularly useful where the circumstances involve dismissal, discrimination, whistleblowing, redundancy, contractual payments, bonuses or commission, grievances, restrictive covenants or potentially valuable Employment Tribunal claims.

A solicitor may also identify provisions that an employee focused mainly on the settlement figure could overlook.

6. What Happens If You Reject the Offer?

Rejecting a settlement agreement does not itself resolve the underlying employment situation.

What happens next depends on the circumstances.

Your employment may continue. The employer may make another offer. A disciplinary, grievance, redundancy, capability or performance process may continue.

In some cases, the employment relationship may subsequently end and the dispute may result in Employment Tribunal or court proceedings.

This does not mean you should accept an inadequate offer because you fear what might happen next. It means you should understand the realistic alternatives before rejecting an offer or making a counter-offer.

7. Do You Need Legal Advice Before Signing?

Yes, if the settlement agreement is intended to satisfy the statutory requirements for waiving relevant employment claims.

The employee must receive advice from an appropriate independent adviser about the terms and effect of the proposed agreement and, in particular, its effect on the employee’s ability to pursue the relevant claims.

A qualified solicitor can provide that advice.

The agreement must also identify the particular complaints or proceedings that it intends to settle. General wording simply referring to “all claims” does not, by itself, satisfy the statutory requirements for waiving every possible Employment Tribunal claim.

Independent advice therefore serves an important purpose. You should understand what rights you are giving up before you sign.

8. Does the Employer Have to Pay Your Legal Fees?

There is no general legal requirement for an employer to pay the employee’s legal costs of obtaining independent advice.

However, employers commonly offer a contribution towards those costs.

If the agreement is relatively straightforward, the contribution may cover the cost of the required independent advice. If substantial negotiations or complex legal issues arise, additional legal costs may be involved.

The contribution towards legal fees can itself form part of the settlement negotiations.

9. How Long Do You Have to Consider the Offer?

There is no single period that applies to every settlement negotiation.

However, the Acas Code of Practice states that parties should have a reasonable period to consider formal written settlement terms and obtain independent advice.

As a general rule, the Code states that 10 calendar days should be allowed to consider the proposed formal written terms and receive independent advice, unless the parties agree otherwise.

If your employer gives you a particularly short deadline, obtain advice promptly rather than signing simply because the offer appears to be about to expire.

10. What Else Should You Check Before Signing?

Before signing, check more than the amount of compensation.

Consider when the employer must make payment and whether the agreement correctly deals with salary, notice, holiday pay, bonuses and other contractual sums.

Check the termination date and what happens to your benefits. Read the confidentiality provisions carefully.

Consider whether existing restrictive covenants remain in force or whether the agreement creates, removes or changes any restrictions.

If the employer has agreed to provide a reference, check the wording and consider having the agreed reference attached to the settlement agreement.

You should also understand any obligations that continue after payment. Settlement agreements frequently contain continuing obligations concerning confidentiality, company information, property and other matters.

11. Before You Accept the First Offer

A settlement agreement can provide a clean and commercially sensible end to an employment relationship.

But the first figure offered should not automatically determine whether you accept.

Before signing, ask yourself three questions:

What am I being offered?

What rights and potential claims am I giving up?

Could the financial or non-financial terms reasonably be improved?

Sometimes the original offer will be reasonable.

In other cases, negotiation may improve the settlement payment, reference, restrictive covenants or other terms.

The important point is to understand your position before you sign.

Frequently Asked Questions

Do I have to accept my employer’s first settlement offer?

No. Settlement agreements are voluntary. You can reject an offer or propose different terms.

Can I ask for more money?

Yes. You can propose a higher settlement payment, although the employer does not have to accept your proposal.

Can I negotiate my reference?

Yes. The wording of an agreed employment reference can form part of settlement negotiations.

Can I negotiate restrictive covenants?

Potentially. Existing or proposed post-termination restrictions may form part of the negotiations.

Can my solicitor negotiate directly with my employer?

Yes. Where appropriate, your solicitor can communicate with the employer or its legal representatives and negotiate proposed changes on your behalf.

Is a counter-offer risky?

A counter-offer can affect the negotiation, so you should consider the circumstances, the strength of your position and the terms of the original offer before deciding how to respond.

How long should I have to consider a settlement agreement?

The Acas Code recommends a reasonable period and states that, as a general rule, 10 calendar days should be allowed to consider formal written terms and obtain independent advice, unless the parties agree otherwise.

How LawLex Solicitors Can Help

LawLex Solicitors advises employees on settlement agreements, including the legal effect of the proposed terms, potential employment claims and, where appropriate, negotiations with employers and their legal representatives.

If you have received a settlement agreement and would like advice before signing it, you can contact our team to discuss your position.