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Gordon Turner Employment Lawyers

Settlement Agreements - the Basics

What is a Settlement Agreement?

When you’re offered a Settlement Agreement there’s probably a lot on your mind: paying the bills; Cost of Living…the job market not least what to say to your family.

I’ve been advising on Settlement Agreements for over 30 years and have written this short note to hopefully make the big issues simple.

Once I’m instructed, I can go into more detail if necessary.

A Settlement Agreement is simply a contract designed to help employers and employees part company amicably with all the loose ends tied up. In really simple terms, you are and your employer part on good terms and agree not to bother one another going forward! The parties agree to protect one another’s reputations and with employees this is normally tied to an agreed reference.

Once a Settlement Agreement has been signed, you cannot bring any Employment Tribunal claims (things like unfair dismissal; discrimination or whistleblowing). They mainly apply to employees although sometimes to self-employed people (or ‘workers’) in cases where Discrimination or ‘Whistleblowing’ (reporting legal failures leading to dismissal or detriment).

I have seen quite an upturn in Settlement Agreements mid-2023; probably a result of concerns about inflation, interest rates and the uncertain economic situation…. Public and private sector employers seem to be tightening belts.

The main claim for an employee is Unfair Dismissal which normally requires 2 years’ continuous employment (not with Whistleblowing or Discrimination).

Settlement Agreements can seem intimidating: lots of legalistic words but do remember that they are normally a template document, developed over the years to deal with all the typical issues which crop up on a departure: handover, reputations & confidentiality, protection of the employer’s property and relations with clients and staff. So don’t take all those words personally…

Compared with a legal dispute, Settlement Agreements have many advantages:

  • no legal costs (these can run into thousands of pounds in a tribunal)
  • tax efficiency (payments of compensation under £30,000 are tax free)
  • protection of your career... a dispute of any kind may well hold you back when applying for work. Employment Tribunal decisions can be accessed and read from an online register including all the details of the dispute!

Not to mention ‘peace of mind.’ Employee clients of mine have all told me that going to an Employment Tribunal (all those familiar faces now turned to stone and lawyers scribbling notes) is a very unpleasant experience even if you win.

Do I need a solicitor for a Settlement Agreement?

For a Settlement Agreement to be legally binding you must have received advice from a qualified lawyer such as a solicitor on the terms of the Agreement and in particular that once signed you cannot take any claims to an Employment Tribunal. I will sign the necessary adviser certificate when we return the Agreement.

How much do solicitors charge for advice on a Settlement Agreement?

Some solicitors charge their normal hourly rate but like many others, I offer a fixed fee service based on the amount your employer has agreed to pay- normally £350 or £500 plus vat. This is normally set out in the Agreement itself or a letter sent with the Agreement from HR.

I offer a ‘same day’ service for people who want to get on with life’s next challenge.

The fee covers advice on the terms Agreement and reasonable requests to your employer. If you are involved in a dispute and some way from agreeing a Settlement Agreement or the terms offered are far off what you are looking for then I can refer you to another employment lawyer or the Law Society database which you can access via: The Law Society Website here.

I will send you my client care letter confirming the fixed fee before we start.

What is the average Settlement Agreement payment?

There is no set calculation for the compensation element. Much will depend on:

  • if you have a potential legal claim
  • how strong that claim is
  • (very importantly) how long it will take you to find another job
  • Goodwill- have you been a good employee? Will they go that bit further to recognise this?

Also relevant will be your employer’s financial situation. If it is in trouble there will be policy decisions at management level which may well make it very difficult to push for more, even on a goodwill basis.

The rules for compensation

If you go to an Employment Tribunal compensation is calculated as follows:

Basic Award/Redundancy Payment- if you are made redundant the Redundancy Payment is fixed by the Government based on a notional week’s way. This is £643 for each complete year worked under the age 41 and £964 for each year worked over age 41. There is a maximum of 20 years’ service.

Note, if you are being made redundant you won’t also get the Basic Award (which is exactly the same award) on top. If you are not being made redundant and have a potential unfair dismissal claim you would normally expect the Basic Award to be factored in to the Settlement payment.

Notice payment- this will be in your contract of employment, or the minimum allowed by law which is 1 week for each year’s service to a maximum of 12 weeks’ pay. This is based on your normal week’s pay and is subject to tax and N.I. You might be asked to work your notice or more often, to  go straight away and get paid ‘in lieu’ of all or some of that notice. The advantage of payment in lieu is that you don’t do any work and can even get another job for the period in which you have already been paid.

Compensatory Award- the main award in a potential Unfair Dismissal claim is for future lost earnings. This is capped at 12 months’ pay with an upper amount of £105,707. The award is based on your net earnings. 12- month awards are very rare and tend to be awarded when an employee will face special problems finding work, for example if the employer has damaged their reputation or health or if they have a very high income or perhaps are at the end of their working life. Other things to consider include:

Mitigation of lost earnings/looking for a new job- you will be expected to show that you have taken reasonable steps to find alternative work. This would normally be in the same sector and not a career- change. An employer may well produce search results based on your role and location and produce these during discussions on the amount.

Polkey reductions- in the case of ‘Polkey’ the senior court found that reductions to the award can be made where an employee was unfairly dismissed but they would have lost their job in any event. This can be relevant with procedural challenges such as insufficient time to prepare for a dismissal meeting or if something happened during the period of lost income (eg: a round of redundancies so you would have been dismissed then).

Contributory conduct- a tribunal can look at your conduct to see if you have contributed to your dismissal. Sometimes this can even involve conduct after you have left.

Injury to feelings – this is only available in Whistleblowing or Discrimination cases. The award is discretionary and will depend on the severity of the harm caused. This is set out in ‘Vento’ guidelines update each year:

Lower band of £1,100 to £11,200- for less serious cases- Typically a one-off/isolated instance of discrimination

Middle band of £11,200 to £33,700 - for cases that do not merit an award in the upper- band

Upper band of £33,700 to £56,200- for the most serious cases including stress related injury or sustained campaigns of victimisation

How to get a good Settlement Agreement?

Whether you sign a Settlement Agreement is up to you but do bear in mind that many advantages are long term: ‘closure’ and reputation- related. You should take great care not to jeopardise your career for short-term gain. Your career is an asset for a life whereas a one- off compensation payment will soon go. 

Here is some commonsense guidance based on 30 years’ experience of mine negotiating Settlements:

Don’t look a gift horse in the mouth! - if you have no claims and the offer is enhanced, trying for more may jeopardise the deal on offer and worse still your relationship with your employer. It might be better to take the deal and press on with getting another job.

If you have potential claims - put them gently and clearly- Nobody likes to feel threatened and employers rarely respond to this. Don’t engage egos by making broad and serious allegations if you can avoid it. And make sure there is substance to support any case:

  • key dates
  • why you may have a case?
  • Evidence…witnesses or documents to supports you case.

Take great care before advancing serious allegations such as whistleblowing or discrimination. Firstly, your employer may well feel motivated to challenge the allegations to protect its reputation and secondly, it may also want to set an example…that it doesn’t give in to this approach.

Challenging redundancy dismissals – care needs to be taken. An employment tribunal has no power to consider an employer’s managerial decisions involving reducing staff. With group redundancies it is very hard to make an individual challenge. It can be helpful if you can pinpoint a motive for unfair treatment within the redundancy. Key things to think about:

  • Is there an anticipated decline in need for the work you carry out?
  • If you dispute this what evidence do you rely on?
  • Has your employer taken reasonable steps to avoid the redundancy dismissal? If not, be prepared to explain what they have not done and how it would have worked

Ask good questions -a chronology and one or two good questions can be more effective in a negotiation instead of outright assertions of for example, discrimination. In employment law, an employee who raises an arguable case passes the burden of proving an innocent basis to the employer. And by doing this gently you aren’t creating unnecessary trouble for yourself. Employers might feel more agreeable to re-negotiate if they are not being asked to concede serious issues.

Respect confidentiality - sometimes, employees tell me that they won’t accept an offer because they are aware of the details of another employee’s Settlement. This sort of behaviour doesn’t help at all. The employee who divulged that information will be in breach of their Settlement Agreement and from your point of view, you are giving your employer a very good reason NOT to negotiate to again set that example! Make it clear that you get this from the outset.

Be reasonable - to succeed in a negotiation people need to meet in the middle. There’s no point asking for a 100% of what you might get if totally successful as your employer’s lawyers will just come back at you with their own good questions to knock you down and you will lose credibility. Focus on the net benefit of a settlement…what you get in your hand and for your future.

Pain to gain- there’s nothing wrong with other good old sayings such as a ‘bird in the hand is worth two in the bush.’ Who wants an additional (say £20,000) if you pay a lawyer £7,000, lose tax efficiency and find yourself unable to get a job!

The 2-year test

The best test to apply to a Settlement offer is: where will I be in 2-years’ time? If your career has been ruined due to unfair treatment and you are 60 years’ old, then pressing forward with a dispute may be the right choice. But generally putting things behind you and cracking on makes much more sense, emotionally, careerwise and financially.

For advice on your Agreement, just send it to me at: This email address is being protected from spambots. You need JavaScript enabled to view it. along with your mobile number and your manager’s name and email.

Speaking about Settlement Agreements
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