I’m an employment solicitor and I’ve been advising employees and employers for over 20 years on employment law and settlement agreements. Many settlement agreements are long and contain a lot of technical legal jargon. The aim of this guide, and settlementagreement.co.uk generally, is to cut through the lawyer-speak and explain what everything means in plain English. I hope you find it helpful.

Contents

In this settlement agreement guide for 2025 you’ll learn:

1. Key points

Having a conversation with a solicitor about a long legal document is not most people’s idea of fun. However, the law requires an employee to do just that; to have legal advice from a qualified legal adviser, e.g. a solicitor, on the settlement agreement terms and its effect. I try to make the advice process engaging and positive and help my clients to focus on the key parts of the agreement that are most important to their situation.

Why signing a settlement agreement is a big decision

If you sign a settlement agreement you’re effectively signing away your employment rights and claims. You won’t be able to bring claims against your employer, and the only monies and benefits you’ll be entitled will be set out in the settlement agreement.

You’ll probably be required to keep everything confidential, return all company property and not badmouth your employer or be critical, subject to a few permitted disclosures, like reporting a crime to the police or whistleblowing.

You may also be required to promise you’ve not done anything in the past that would have entitled your employer to dismiss you – had they known about it. Other clauses will set out the payments and any benefits you’ll receive, which payments will be taxed, and that you’re responsible for any extra tax.

Essentially, these are the main and common parts to a settlement agreement. I cover all of this and more more detail below, and you can jump down the settlement agreement rabbit hole by following links in the article.

Quick Fire FAQs

• What is a Settlement Agreement? A settlement agreement settles employment claims an employee may have. This will mean the employee will not be able to bring employment tribunal and legal claims against their employer.

• What is a Compromise Agreement? The old name for settlement agreements – the name changed in 2013. But old habits die hard and you still hear people calling them compromise agreements!

• Is it confidential? Pretty much. Settlement agreements usually contain some hefty clauses requiring the employee to keep the existence, terms and circumstances leading up to the settlement agreement confidential. There are some permitted disclosures we cover these in more detail in our guide on confidentiality.

• Why do employers use settlement agreements? To ensure employees don’t bring employment claims and to move quickly to an employee exit. Whether its a redundancy, performance issue or sickness, employers sometime prefer to offer more money in exchange for peace of mind the employee won’t bring a claim.

• Do I need a solicitor? It’s a legal requirement for the employee to have independent legal advice on a settlement agreement, otherwise the agreement cannot lawfully prevent the employee bringing statutory employment claims.

• Who pays for the cost of a solicitor? Because its a legal requirement for the employee to have their own legal advice, employers will agree to make a payment to cover the cost of a solicitor advising the employee on the settlement agreement.

• How much does legal advice cost? Employers tend to offer between £250 and £750 ex VAT towards the cost of the employee getting independent legal advice from a solicitor on the settlement agreement. My practice is to cap fees at the employer’s contribution to legal fees when an employee just wants advice on the settlement agreement terms and its effect.

• Who does the solicitor invoice for the advice I get? After the settlement agreement is signed-off and completed your solicitor will send their invoice to your employer for the agreed contribution to legal advice fees. The invoice should be marked payable by your employer.

• Is a settlement agreement payment agreement tax-free? The tax position depends on the nature of the payments made under the settlement agreement. If you’ve fully worked your notice entitlement or been paid in lieu of your full notice entitlement, usually the first £30,000 of a termination payment can be paid tax-free. I cover tax in more detail later section 5 of this guide.

• What do I do if I’m happy with the financial term and want to sign? If the settlement agreement is ready to sign you can go for our fast solicitor advice service. If you have the agreement we can move pretty quickly, a day or so to make an appointment, review, advise on a call (solicitor and client) and sign-off.

What is the effect of a entering into a Settlement Agreement? By entering into a valid Settlement Agreement an employee agrees to give up certain legal rights usually in return for a severance payment or package. The main effect of the agreement is you will not be able to bring employment claims in the employment tribunal or court that you have agreed not to bring, such as unfair dismissal, unlawful discrimination, or breach of contract claims.

2. Settlement offers

How to make an offer

Employers or employees can make a settlement agreement offer if they wish.

While there are important tactical and risk-based considerations, an employee may decide the best thing for everyone is if they part company and agree a fair financial exit package, all wrapped up in a settlement agreement.

If the settlement offer does not result in a binding settlement, the offer and settlement discusisons will usually (but not always) be inadmissible in any claim, by reason of it being ‘without prejudice’ or a protected conversation.

What does without prejudice and subject to contract mean?

Employers tend to label the meeting or offer letter (in which they make the settlement agreement offer) as without prejudice or a protected conversation or an ‘ offer made pursuant to section 111A of the Employment Rights Act 1996‘.

This means the employer is saying they think the offer and associated settlement discussions are off the record and you can’t use them against the employer. Put another way, the offer is not ‘open’ and it’s not admissible in any employment tribunal claim or court proceedings.

Whether any offer or associated discussions really are, legally speaking, without prejudice isn’t actually determined by the use of a label in a letter or at the start of a discussion but a set of rules developed from past legal cases.

Arguments about whether a communication is without prejudice can become a distraction from the main goal of trying to reach a concluded settlement agreement. Ultimately, if you’re happy with the offer and you sign the settlement agreement, whether the discussions were without prejudice will be academic. However, if an employer has clearly acted improperly or dishonestly during the settlement discussions, an employee may seek to gain some leverage in negotiations by pointing that out and arguing should the matters not be resolved the employee will be able to bring the employer’s conduct to the attention of the employment Judge in an employment tribunal claim.

We can do this the easy way or the hard way.

Where the employer is using the settlement agreement as a way of avoiding or cutting short an internal employment process, like a redundancy consultation, or performance improvement plan, sickness procedure, disciplinary, or grievance procedure, an employer may want to spell out what might happen, if the employee rejects the offer, in the settlement discussions.

For example, if the employer is concerned about the employees performance, the employer might point out if the offer is not accepted it will start a performance improvement plan, or a formal capability hearing, and that one possible outcome from that process may be dismissal.

The same approach might happen in a disciplinary situation, where an employee is facing a disciplinary hearing that could result in dismissal, but the employer decides to make the employee a settlement offer. The offer may give the employee a chance to avoid a dismissal on their record, provide a factual reference, and a payment, although that would decide on the seriousness of the alleged disciplinary offence, and the strength of the evidence.

By doing this, the employer is setting out two clear pathways for the employee to consider, one entails a speedy outcome under a settlement agreement with a known settlement figure and relatively little stress or delay. The other sets out what might appear to be a stressful, difficult procedure for the employee to endure, and then possibly an expensive, time-consuming and drawn out legal dispute if the employee is subsequently dismissed, with the risk the employee may not beat the settlement offer in an employment tribunal, or may even come out will nothing if they lose.

Simply pointing out the realities of the situation and the potential outcomes is actually helpful to frame the decision for the employee, even if there may be some hard truths in that message. However, an employer should not act improperly, threaten, intimidate, mislead or exaggerate the issues, otherwise the employer risks undermining their credibility in negotiations, and emboldening the employee to argue the communication is open and admissible.

Tip: whether you’re an employee or employer, don’t say anything in a without prejudice conversation that you would not be prepared to justify if it was brought out in a tribunal or court claim later. Act professionally at all times and even if its without prejudice, make a note of the discussion in case its needed later.

3. Negotiations and tactics

Is the settlement offer fair and should I accept?

That depends on the offer, the strength of any claims, how long you’ve been employed and factors personal to you. The next section below on negotiations should be helpful. If you are not sure about the financial offer terms you can use a settlement agreement calculator to help assess how much you should get.

While some people might operate under the impression you should never accept the first offer, that is not always the case. And some employers will make clear if the employee doesn’t want to accept the offer, they don’t have to and the other pathway will be followed (see easy way, hard way above).

Negotiating a Settlement Agreement

I’m not happy with the financial terms

Some employees are not satisfied with the financial deal and/or the terms of the agreement and will instruct their solicitor to conduct settlement negotiations on one or both fronts.

The ability to negotiate will usually depend on the circumstances and strength of the individual’s case or the value proposition they can make to the employer that upping the offer represents a reasonable outcome for the employer versus the alternative.

The stronger the legal basis for a claim, the more likely it is that employers will be receptive to negotiations to increase the compensation and amend terms in the employee’s favour.

Other factors may come into play. Understanding the employer’s objectives, and any time pressures might help lead to helpful leverage. For example, if the employer is trying to sell its business, its aim may be to settle quickly to avoid having to disclose it in the sale process.

Alternatively, leaning on relationships, loyal service and conveying that the extent of your potential loss of earnings, based on the time it may take to secure new employment, can sometimes help.

4. Clauses and amendments

5. Money, benefits and tax

Show me the money

The settlement agreement should specify the payments your employer will make to you, when, how and what they are for.

Check the numbers / maths, as employers can make mistakes. And check your employment contract and benefits to ensure there’s nothing missing from the settlement agreement.

Tax on Settlement Agreements

The table below summarises the general position for the common payments received under a settlement agreement.

Wages, bonus, commission	subject to usual deductions for income tax and national insurance (‘Taxable’)
holiday pay (accrued or paid in lieu)	Taxable
PILON (payment in lieu of notice)	Taxable
Post-Employment Notice Pay	Taxable
Statutory redundancy pay	Not Taxable (falls in the first £30,000 cap*)
Termination/Severance Payment	Not Taxable (if it falls in the first £30,000 cap and no part is Post-Employment* Balance over the £30,000 tax free allowance is Taxable).
Contribution to legal fees for advice on a settlement agreement	Not taxable (where the payment is made directly to the employee’s solicitors and meets conditions*).
Outplacement costs	Not taxable (subject to meeting certain conditions*)

* Note there is only one £30,000 tax-free allowance. This means you add up the total value of the termination payment and any redundancy payment, and the balance over £30,000 will be subject to income tax and employee national insurance deductions. For more detailed information on tax relation the settlement agreements, read our tax guide.

6. Types of agreement

There are three types of settlement agreement that may be used by employers.

Statutory settlement agreement – this guide is focussed on this type of settlement agreements. It can prevent an employee from brining contractual claims and statutory claims, like unfair dismissal or discrimination.

Contractual settlement agreements – can prevent an employee from bringing contractual claims but not statutory claims.

ACAS COT3 – can settle both statutory and contractual claims but requires ACAS to conciliate and record a binding settlement. Where an Acas conciliation officer assists in the negotiation of the settlement of an employment tribunal claim (or potential claim), a COT3 agreement is used to record the terms of settlement. A COT3 agreement is a much simpler straightforward agreement that does not have to adhere to the formalities of a settlement agreement because it is concluded with the assistance of an Acas conciliation officer.

Requirements of a legally binding statutory settlement agreement

To protect employees who may be unaware of their legal rights, the law states that a statutory settlement agreement will not prevent an employee bringing a statutory employment claim, unless it meets certain minimum requirements:

• The agreement must be in writing.
• The agreement must relate to ‘particular proceedings’ i.e. particular complaints that the employee may have.
• The employee must identify a relevant independent adviser from whom the employee has received advice as to the terms and effect of the proposed agreement and in particular its effect on the employee’s ability to pursue their rights before an employment tribunal.
• The adviser must be covered by professional indemnity insurance.
• The agreement must state that the legal conditions regulating settlement agreements are satisfied.

Invalid Settlement

If the settlement agreement does not comply with these minimum legal requirements, it will not be valid and an employee will still be able pursue a statutory claims in the employment tribunal against their employer, although he/she may have to repay any monies received, or they may be deducted from any compensation the employee is awarded.

7. Redundancy Settlement Agreements

It is fairly common for employers that are paying enhanced redundancy packages or operating a voluntary redundancy scheme, to require the employee to sign a settlement agreement in exchange for the enhancement.

Fundamentally, a redundancy settlement agreement simply describes a settlement agreement that is used where the reason for the employee’s employment ending is redundancy.

Are there any claims that cannot be settled by a Settlement Agreement?

Not all claims can be settled by means of a Settlement Agreement, for example the right to statutory maternity, paternity and adoption pay and claims under the Agency Workers Regulations 2010.  It is also usual for an agreement not to compromise an employee’s accrued pension rights. There is also usually a clause dealing with personal injury claims stating either that the agreement does not affect any personal injury claim that the employee may have or a clause signing away the employee’s right to pursue claims for injuries of which he/she is already aware.

8. Case Studies

10. About the author

John Hassells is the founder and Managing Director of Deva Law, a specialist employment law firm. John is a fully qualified solicitor with over 20 years experience advising employees and employers on employment law matters, employment disputes and settlement agreements. He is a member of the Employment Lawyers Association, regularly delivers employment law training and provides media comment on employment law developments.

Legal Disclaimer

The contents of this article are intended to be be for general information purposes only and do not amount to (nor are they intended to be) legal advice or a complete or authoritative statement of the law nor should they be treated as such. No warranty or promise is given, express or implied, as to accuracy of the information on this page and no liability is accepted for any error or omission. You should instruct a specialist solicitor to advise you on your particular situation and not act or rely on the information on this page.

How the calculator works

The calculator delivers two results. The first uses the statutory weekly capped figure of £700 (which applies to dismissals that occur in the financial year starting 6 April 2024) to arrive at a statutory redundancy pay entitlement. The second result does not have a weekly cap. You should always check the figures you put into the calculator, for length of service, age and weekly pay are correct, and seek legal advice on your entitlements.

Who is entitled to a statutory redundancy payment?

Employees with 2 or more continuous years service will be entitled to a statutory redundancy payment if their employment ends by reason of redundancy?

How is a redundancy payment calculated?

Statutory redundancy pay is calculated using a formula that uses the employee’s age, length of service, and weekly pay.

Calculating length of continuous employment

Only complete years count. The maximum number of years service that counts is 20, even if the employee has been employed longer.

Once you have the ‘relevant date’ you can work backwards to work out the entitlements as follows:

• 1.5 weeks gross pay for each complete year of service they were age 41 or above.
• 1 weeks gross pay for for each complete year of service they were aged 22-40.
• half a week’s pay for each full year you were under 22.

There is no minimum of maximum age.

What about years when the employee turns 41 should that be treated in the top bracket meaning you get 1.5 weeks? The answer will usually be ‘no’ because for part of that year they were below the age of forty-one (assuming their birthday was not on the first day of the year). The same approach is taken to a years an employee turns 22.

Worked Example:

An employee commenced employment on 25 June 2019 and the employer ends an employee’s employment without notice on 7th June 2024, and makes a payment in lieu of their 4 weeks statutory notice entitlement (i.e. one weeks notice for each complete year of service). However, for the purposes of calculating statutory redundancy pay, because the employee did not work their notice entitlement, the 4 weeks notice is added on, taking the employee to 5 weeks complete years service, rather than 4.

Calculating a weeks pay

Once you have the total weeks you need to work out a weeks pay.

This is the employee’s gross pay (i.e. before income tax and national insurance deductions) subject to a statutory cap, which is updated each 6th April, increasing in line with the retail price index. For the year beginning 6 April 2024 the weekly maximum is £700.

The weeks pay for salaried employees or hourly paid employees with normal working hours will usually be their basic pay; bonuses and commission are not included. Overtime does not usually count unless it is guaranteed. Where the employee’s pay varies despite having normal hours, e.g. piece work, or it varies because of the time of work, e.g. shift patterns, a weeks pay is based on an average based on normal working hours over the previous 12 weeks.

If the employee does not have normal working hours, a weeks pay is based on an average of all remuneration over the previous 12 weeks. Weeks where no remuneration was payable are ignored and the calculation includes the next earliest week to get to 12 weeks to work out the average.

IMPORTANT: The contents of this page are general guidance only and should not therefore be regarded as constituting legal or other advice or recommendations. The calculator is for guidance only and you should always check your entitlements with a solicitor that has considered your particular circumstances.

Calculating your settlement can be tricky because every situation is different. Unfortunately, we can’t punch in a few numbers into a settlement calculator to arrive at the answer to life, the universe and everything…or a settlement figure. There are too many variable and contexts to produce a meaningful and reliable figure. However, this Settlement Calculator Guide has been written by a specialist employment solicitor to offer expert, actionable guidance on calculating a settlement, whether you’re being made redundant, you’re unfit to work, you are facing a disciplinary or a performance improvement procedure. Ready to start? Let’s do the maths …

UPDATED JANUARY 2025

How to Calculate Your Settlement Agreement

Step by Step Guide

Get your paperwork together

Get hold of all of the relevant paperwork so you can calculate your settlement. See the checklist below!

Settlement Agreement Document Checklist

• Last three months payslips.
• Employment Contract.
• Form P60 (this is the tax summary your employer gives you at the end of each tax year).
• Form P11D – this will show the taxable value of any contractual benefits in kind, such as a company car.
• Bonus scheme or rules.
• Long-term Incentive Plans (‘LTIPs’) or similar incentive scheme rules.
• Commission Scheme rules.
• Pension information.
• Share options, or Save as You Earn Scheme documents.
• Work/corporate gym membership terms.
• Redundancy Policy (this may contain details about an enhanced redundancy pay).
• Outplacement scheme (if your employer has this it may provide free or subsidised career support to help you find your next role).
• Ill-health benefits (if your settlement offer comes about because you are unfit to work).
• Any other contractual benefits.
• Any other benefits?

Looking to negotiate a better deal? Read our guide: How to Negotiate a Settlement Agreement.

Know your numbers!

Once you’ve got everything together you’re in a great place to work out the values of your pay and benefits, on a gross and net basis (i.e. before and after tax).

Double check and recalculate the settlement numbers.

Check your employer’s figures against yours.

Go direct to payroll if you need to and the pension provider. But be careful not to breach any instructions your employer has given, for example not to speak to anyone else. If that is the case, get permission first to be safe.

Check your notice entitlement.

Some employers may just look at the employment contract and go off that. They may be mistaken about your start date.

Check your start date and work out your statutory minimum notice entitlement – which is one week for each completed year up to a maximum of 12.

Then check your written employment contract, if you have one, to see what that says. If it’s more than the statutory minimum, that’s your entitlement.

Unless you’re guilty of a serious act of misconduct that would entitle your employer to dismiss you without notice, the first thing to do is check you’re getting paid your full notice.

Your employer may ask you to work your notice. If you’d prefer to leave sooner, this may be a negotiating point.

Summary: You should check (1) when you started (2) how many complete years services you’ve got (3) what your written employment contract says, if you’ve got one (4) when notice was properly served. If the contract says notice must be served in writing, and you were only told verbally, you may be able to argue notice has not yet been served.

Don’t forget the benefits you’ve lost (or will lose) if your employer pays in lieu.

If your employer is ending your employment without giving you notice (or full notice) and instead paying you in lieu, income tax and national insurance should be deducted (like normal pay).

Find out whether you are getting to keep your contractual benefits during the period you would have been employed had you worked your notice, or alternatively, if you are being paid a extra money to compensate you for not getting those benefits during what would have been your notice.

Add up your benefits, by looking at your last Form P11D, or check with payroll or the person in HR that deals with benefits and rewards. Extras like pension contributions, car allowances, private health cover, gym membership can significantly add up. Try and secure their continuation or ask for an agreed payment equal to the value over the notice period.

Tip: Some employment contracts may give the employer a right to end your employment without notice and only pay a payment in lieu of notice based on your basic pay.

Don’t forget holiday pay

You are entitled to be paid any holidays you’ve accrued but not taken, up to the termination date.

The minimum stautory entitlement to paid leave is 5.6 weeks a year. If you work 5 days a week that’s 28 days (inclusive of bank holidays). But you may be contractually entitled to more – check your employment contract. Some employees that work irregular hours or employees on part year contracts, e.g. term time only, might have their holiday calculated as a percentage top up rather than in days or weeks, in which case they should receive their holiday pay as a top up each time they are normally paid.

Employee Tip: If you’ve been prevented from taking your holidays by your employer, or you’ve been on long-term sick leave, you will likely be able to claim back-dated holidays, before the current holiday year, even if your employment contract says otherwise.

Calculate your entitlement in days (i.e. accrued but untaken holidays) and speak to your solicitor about how far you may be able to backdate.

Redundancy

Statutory Redundancy Pay Calculator

If you’re being made redundant, and you have two or more years’ service, you are entitled to at least statutory minimum redundancy payment.

The exact figure you are entitled to will depend on your length of service (in complete years), your age and weekly gross pay. Statutory redundancy pay is limited to 20 years service, and a weekly pay cap, which is currently £700 if you are made redundant on or after 6 April 2024.

Important note: A statutory redundancy entitlement is payable in addition to your contractual or statutory minimum notice entitlement.

Employee tip: Try our redundancy pay calculator that delivers a capped and uncapped redundancy payment figure.

Contractual Redundancy Pay

If your employer has an enhanced redundancy scheme you should be able to calculate the amount you will receive applying the scheme’s formula. If you’re not sure if there is enhanced scheme, or you think your employer have offered other employees an enhancement but not you, see if you can get some advice or intelligence from the trade union or employee representatives in place about custom and practice regarding redundancy payments.

Often, an enhanced scheme will be similar to the statutory formula but with improvements, for example, disapplying the cap regarding years services or weekly pay, or paying more weeks for each year of services than the statutory formulae provides for.

Employee Tip: Check your Staff Handbook for any redundancy policy.

Sickness and Ill-health Settlement Agreement Calculator

Permanent Health Insurance

If you’ve been offered a settlement because you’ve been sick and unable to work, check whether you’re entitled to Permanent Health Insurance (also known as income protection insurance or ‘PHI’). This kind of insurance is sometimes part of the benefits package you’re entitled to. The purpose of PHI is to provide an income while you are unable to work. The terms of PHI policies vary. Some say you need to be unfit to do your job, others say you need to be unfit to any work. They typically provide income protection at between 50% and 75% of your salary (and are intended for situations where an employee is unlikely to be able to work for a long time).

If you’ve been offered a settlement agreement you may be better off applying for PHI, if you are likely to be unfit to work for a while and you meet the policy requirements. PHI policies will cease to provide any benefits once someone ceases to be an employee. Pursing PHI and accepting a termination payment under a settlement agreement will normally be mutually exclusive.

Employee Tip: Speak to your employment solicitor about your options and get hold of the insurance policy wording.

Critical illness insurance cover and settlement agreements

Some employers provide critical illness cover. Generally, it will involve a lump sum payment, if the employee is diagnosed with a serious condition, such as cancer. If you’ve got this benefit get hold of the policy and speak to the insurer / broker.

It has been known for employers to offer a settlement agreement without informing the employee they could have made a claim for critical illness benefits. Once your employment has ended under the settlement agreement you will usually lose any entitlement to claim!

Employee Tip: If you’ve got critical illness speak to the insurer about whether you’re likely to be successful based on your health condition and find how much you could get, and when and how you need to make a claim.  You can learn more about this cover here.

Ill-health retirement and ill-health pension benefits

Check whether you have these. Sometimes they are attached to your pension. Obtain the relevant policy or benefit wording. Much like PHI, these benefits can be extremely valuable and should not be given up by signing a settlement agreement without carefully weighing up the pros and cons. But be realistic as well. If you’re illness is not likely to be long-term it maybe you won’t fulfil the criteria to claim these benefits.

Poor Performance – Settlement Agreement Calculator

Sometimes, rather than go through a performance management procedure, or performance improvement plan (‘PIP’), your employer (or you) may decide to offer a settlement agreement. If that happens the value of your settlement may come down to:

• Your notice entitlement

This is because even if you are dismissed for poor performance, unless you have been grossly negligent or guilty of gross misconduct, you will still be entitled to your contractual notice.

• How long the process will take before your employer can dismiss you fairly?

If you have under two years’ service, your employer may decide to just serve notice or terminate your employment immediately and pay in lieu. An employer may do this because an employee needs two years’ service to bring a claim for ordinary unfair dismissal.

If you have accrued a right not to be unfairly dismissed the employer must follow a fair procedure if it wants to avoid losing an unfair dismissal claim. That would usually require an employer to give an employee reasonable time to improve, and issue at least a first written warning, then a final warning, before dismissing you. Typically, that could take a few months to complete.

• Whether there is an underlying health condition that might be a disability.

If there is, your employer will have added risks if it dismisses you for poor performance related to your disability. It will probably need to get medical evidence. If the disadvantage your disability causes could be reduced by making reasonable changes, often referred to as ‘reasonable adjustments’ not doing so would amount to disability discrimination. In these situations, your employer may be willing to increase the settlement to get the deal done, knowing otherwise it would have disability risks to contend with.

• Your employer’s attitude to settlement payments versus getting on with the performance procedure.

Employers are unlikely to overpay. If it is already incurring the cost of employing Human Resource Managers, it may prefer to performance manage you and see what happens: you either improve, or you don’t, in which case it dismisses you and pays you notice pay only.

• Your position and attitude to settlement

Employers will often assess the individual employee. If you’ve got another job, are bound to get something quickly, showing signs of wanting ‘out’, or you’ve made the first move and approached your employer, the chance of getting a higher settlement might diminish.

If your employer has a track record for offering deals, then a quick early conversation may work in your favour even if you make the first approach. This ties back to one of the points we made in our Settlement Agreement Negotiations Guide; think about who you are negotiating with carefully, and pick the best person to negotiate with if you do have the choice.

Calculate the Compromise

Settlement Agreements were previously called Compromise Agreements. The name change occurred in July 2013 – and although the new term is perhaps clearer – after all, the purpose of is to settle claims, there was a lot to be said for this old name. It reminded the parties that the spirit of doing a deal is to compromise, and that neither side is likely to get everything their way.

For the employee, there can be non-financial benefits to doing a deal, for example being released from post-termination restrictions, that might warrant taking less money, or fighting too hard.  You may even lose the deal if you fight too hard (although that is rare).

You may annoy your employer so much or fight so hard (and successfully) that you leave deep scars for the people the other side of the negotiation. That might not concern you but if you’d prefer to leave on amicable terms, pushing for every last pound may not be worth it if you damage the relationship with colleagues forever.

Factor in the chance that you may end up working with some of the same people in the future, as colleagues, or customers or suppliers. In some industries, the chance of meeting each other again might be better than not.

Conclusion

Ask yourself whether, factoring in financial and non-financial considerations, the financial deal is good enough to tide you over until you get another job, especially if you’re going to get outplacement support and you can secure an agreed reference as part of your settlement agreement. As they say, some things are worth more than money.

We hope you found this settlement agreement calculator guide helpful. If you have any tips or guides to help our readers, please get in touch. Thanks for reading!

Redundancy and Settlement Agreements

Being made redundant?

Okay, there’s no getting away from it – losing your job is hard. This guide, written by an expert solicitor, sets out simple steps to help you with your redundancy settlement agreement offer.

RULE 1: Don’t panic. Remember this is not your fault.

RULE 2: However scary, embrace this current reality and prepare for the next phase of your career.

RULE 3: A redundancy settlement agreement can bring tangible benefits but make sure the deal is right for you and get the agreement checked off by a specialist employment solicitor.

Remember the ‘why’.

Why do employers use redundancy settlement agreements?

Employers use settlement agreements because they are fast, efficient and offer a clean risk-free break. The employer pays the employee more than their basic statutory and contractual entitlements in exchange for which the employee leaving quietly and often quickly, without the fuss of a full redundancy consultation process or risk of a tribunal claim.

Voluntary redundancy settlements:

The employer asks for volunteers to apply for redundancy with an enhanced redundancy package.  You apply successfully and your employer asks you to sign a settlement agreement. You then need advice on the agreement from a solicitor. The solicitor will sign it off (if you’re happy to accept) and the agreement then becomes a binding settlement agreement.

The early redundancy settlement offer:

Your employer calls you in, without prior warning and informs you that your job is at risk and they would like to offer you an enhanced package under a settlement agreement.  If you accept, you leave, often pretty quickly. If you decline, your employer will then start the redundancy consultation. If you are subsequently made redundant without a settlement agreement you usually get the basic statutory redundancy payment and notice under your employment contract.

The late redundancy settlement agreement offer:

Your employer starts a redundancy consultation process. Then, part way through, or even after it has come to its decision to end your employment due to redundancy, it gives you the option of an enhanced redundancy package if you sign a settlement agreement.

The post dismissal redundancy settlement agreement:

After you are told you will be made redundant, you challenge the decision or raise an appeal, and the parties agree to a settlement. Sometimes by this stage the employee has already started ACAS early conciliation and the deal is recorded under an ACAS COT3 agreement or a settlement agreement.

In a redundancy situation, employer’s often use settlement agreements when they are paying the employee an enhanced termination payment (i.e. more that the statutory minimum redundancy payment).

Example Redundancy Settlement Discussion

Employer: Hi Alex – unfortunately due to the pandemic and a downturn in work your role is at risk of redundancy. If you are made redundant you statutory redundancy pay would be £5,440 and plus 8 weeks notice. We’d like to bump that up and offer you £8,000 plus your notice – and agree a leaving date at the end of the month. If you accept that offer we would record everything under a formal settlement agreement. This is a voluntary and if you don’t want to accept this offer we will carry on with the redundancy consultation and discuss with you if there are any alternatives or ways of avoiding redundancy. If you turn down this enhanced offer and you are made redundant, you will only get the statutory redundancy payment and your notice – not this enhanced offer.

Employee / Alex: Okay, the extra money would be appreciated, I think I’d like to accept the offer but can I have a think about it.

Employer:  Yes, we will get the agreement out to you by tomorrow and you will need to find a solicitor to advise you on the agreement and we will pay for you to get that solicitor advice. If you want to accept we will need the signed settlement agreement back by [date] otherwise we will continue with the redundancy process.

Employee A (thinks): – oh, I don’t think this is fair and I wanted to take the money and bring a claim a tribunal. What do I do?

Employee B (thinks)– I wouldn’t bring any claims anyway and if I’m going to go I might as well take the deal.

Meeting ends.

Tip: Do not assume the settlement is being offered because the employer is worried they’ve done something wrong that could land them in a tribunal. Yes, that might be true, but in redundancy settlement situations, many employers use settlement agreements a matter of course.

Should I stay or go?

Have you decided to leave and it’s just about getting the best terms – or would you like to stay employed if that’s viable?

My preference is to leave with a redundancy settlement agreement:

There are lots of reasons why you might want to accept a redundancy settlement:

• You’ve been planning to leave anyway.
• You’ve another job offer lined up.
• You want to be a consultant or set up your own business.
• You’ve not been happy at work.
• You think you will get another job quickly.
• The financial terms are pretty good.
• Accelerated receipt compared to a tribunal claim that will take months.
• Closure and certainty.
• A job reference and amicable exit.

My preference is to stay:

Entering into a redundancy settlement agreement is completely voluntary.  If you reject the deal and carry on with the redundancy consultation you may still be made redundant at the end of the process – with an inferior redundancy payment.

Be objective about your chances of retaining your job at the end of the consultation.

Asking some of these questions might help?

• A redundancy pool of one – if your role is unique and you’re not being scored against others in a pool, how realistic a chance is there you can convince your employer it would be a mistake to remove your role? Think about the underlying reasons your employer is relying on to support the proposal.
• Alternative roles – Are there (a) suitable (b) available and (c) alternative roles you would like to apply for? Be realistic about (a)-(c). Your employer is not required to make a new job for you, or other you a role that is not suitable.
• Scoring mistakes – Do you think your employer has made an obvious mistake with your scores that you can prove. For example, they have said you had 6 days sickness absence but that’s wrong – as 2 of those days were due to emergency because your child was ill. If your employer has given you a 3 out of 5 for your skills, and you think you should be a 4 out of 5 say, is that something you think you can demonstrate with evidence – and even if you can, will it make a difference to the outcome (i.e. will you still be provisionally selected as one of the lower scoring employees in the pool)?
• Personality issue – do you suspect your boss doesn’t like you or someone else is a favourite and that’s behind your redundancy selection? Okay, maybe you’re right, but is it realistic to think your employer is going to accept that’s the case? Do you have evidence? Even if you do, will that make a difference? Would it be better to work on negotiating a better redundancy settlement?  

What’s the alternative?

Life is about choices and options. Being offered a settlement agreement is one option. You can accept, reject or negotiate.

Accept:

You will need a solicitor to advise you on the agreement and check it’s right for you.

Reject:

If you reject the redundancy settlement offer, what are the alternatives?

• Is there a suitable alternative role in the same company?
• Do you have a good chance of securing a commensurate role with a new employer?
• How long will it take you to secure a new role?
• Are you going to set up on your own / will the redundancy payment help to fund that?
• Do you have restrictive covenants (post-termination restrictions) in your employment contract that will make it harder to secure a new job quickly in the same industry?
• Employment tribunal – do you have a reasonable chance of success and how will you cover the legal costs and can you afford to wait for a Judge to consider your case?  

Important note: many regional employment tribunals are experiencing considerable delays in getting claims to a final hearing before a Judge so you might need to wait a year or more.

Negotiate a better redundancy settlement:

If you think you have a genuine chance of convincing your employer to re-think the proposed redundancy you might be prepared to lose the enhanced settlement deal. But be realistic and objective.

Other times, redundancy could be the worst timing – and you may be fearful about securing a new job quickly – or at the same level of seniority.

Redundancy Examples:

Unique role:

You perform a senior unique role in the company which has been placed at risk. Your employer’s driver is to save costs. In this situation, unless there is a suitable alternative role available, it may be difficult to keep your job.   

Pool of employees:

If you are in a pool of employees and you have scored low enough to be one of the unlucky ones that’s been provisionally selected for redundancy, you might be able to persuade your employer to increase your scores. Has your employer got the maths wrong or got something fundamentally wrong, like scoring your absence record as worse than it is? If you’re substantially below the threshold for being safe from redundancy, things get tougher to turn round.

Enhanced voluntary redundancy settlement agreements

Some employers will ask for volunteers for redundancy. Usually, you are told what the financial enhanced severance package is- and then you decide whether to apply. If your application is successful, the chances of you improving the redundancy severance further, from that point, are low.  

If your employer has approached you with a proposed redundancy settlement agreement offer, you may be in a better position to negotiate improved terms. Deciding whether to negotiate will depend on a few factors:

• Do you have 2 or more years service entitling you to bring a claim of unfair redundancy?
• Is your employer applying a standard enhanced redundancy payment formula it uses?
• How does the offer compare to the potential value of claims.
• Are you being asked to work your notice / does your employer need you to finish off an important project / piece of work?

But if you’ve applied for a voluntary settlement, you should have been told the financial terms.    

What’s a fair redundancy Settlement?

This is the sixty four million dollar question and if you feel the deal is unfair we recommend you speak to one of our solicitors to get some advice. Here are 5 things to consider:

• Does the deal include your full notice entitlement?
• Has your employer correctly calculated your statutory redundancy entitlement?
• Is there a contractual enhanced redundancy scheme and if so has your employer applied that correctly?
• On top of your basic contractual and statutory entitlements to notice and redundancy pay, how much are you being given? Working this out gives you the true financial value you getting in exchange for waiving your rights.
• What else are you getting that you would not otherwise get – for example, a reference, or chance to not work your notice and be paid in lieu, or retention of company car?
• If you’ve bene treated badly and think you have employment claims, what are they realistically worth and how likely are you to succeed?

Tip: Try our Settlement Agreement Calculator.

Redundancy FAQs

What happens if you apply for a job and you suspect you don’t get it because of discrimination? What is a valid basis for suspecting you’ve suffered discrimination and what evidence do you need?

1. No right to be treated fairly.

Generally speaking, an employer can decide who it offers a job to. If you get the job because your favorite colour is orange that might seem unfair to the candidate who prefers green. It’s not related to the role and an employer is going to struggle to rationally justify the decision. But the decision isn’t unlawful or discriminatory.

That’s because there’s no general legal right to be treated fairly when you apply for a job. Sounds harsh, but it’s true.

2. No right to feedback

Unsuccessful candidates have no legal right to feedback. So if you never hear how you got on, you can’t legally insist on a reply.

3. Discrimination is defined by reference to specific characteristics.

An employer will face a risk of a discrimination claim if it rejects a candidate because of a ‘protected characteristic’.

Under the Equality Act 2010 the following are Protected Characteristics:

• Race
• Sex
• Marriage and civil partnership
• Pregnancy
• Gender reassignment
• Disability
• Religion or Belief
• Sexual orientation
• age

4. The Discriminator

What was in the mind of the person that decided to reject you for the job? That is the key question an employment tribunal will need to answer.

But as we can’t (yet) read people’s minds the law works by drawing from wider evidence as to what was going on in the decision-makers mind head at the time they decided to reject you and offer the job to someone else.

So how do you prove the decision-maker is a discriminator?

5. Gathering Evidence

People who discriminate don’t tend to admit it, to themselves or to employment tribunals or their own company or the wider world.

The most obvious piece of evidence is something that was said or done that suggests a discriminatory mindset.

6. Make Notes

If something has been said during an interview that causes you concern, make a detailed note of the interview as you can. If possible, make a quick note during the interview itself, or soon after. Handwritten notes are fine.

Write as much down as you can – the exact words used, the comments, questions and answers. A transcript format works well:

Interviewer: Do you have a children?

You: Yes, I have a 4 year old girl and 6 year old boy.

Interviewer: Oh right, we have to work late sometimes. Would that be a problem?

If you have a concern, try and note down the whole interview, as best you can. That way you give the concerning comments context.

An employment lawyer will be able to analyse this evidence and advise you on the merits of a discrimination claim.

7. Seek feedback

Seek feedback on why you were unsuccessful. That might be on a phone call, so you guessed it, be ready to make more notes of the reasons given. And be prepared to ask questions. For example, if the employer says the other person had more experience, or qualifications, you should try and drill down into what that really means. What experience, what qualifications.

Remember, if your employer perceives you to be hostile there’s a good chance they will close down the follow-up / feedback process.

Tip: Structure and sequence your questions carefully in advance – be friendly, and positive in your tone. You are just looking for some pointers of where you could improve!

8. Successful candidate analysis

You may know who got the job. Some industries are pretty tight knit and word gets out, or you might see an update on the company website or LinkedIn. If you do, consider carefully whether the successful candidate appears (on paper) to be the better qualified person for the job.

Does the successful candidate’s LinkedIn profile have superior work experience and academic qualifications?

Tip: Online data changes and is deleted. Consider screen grabbing the evidence.

9. Take stock

Think carefully about everything that was said and done. It may be the feedback has satisfied you that the better candidate got the job, or that your ‘protected characteristic’ was not relevant or a factor in the decision to reject your application.

Remember that even if an interviewer has said something that you think might suggest discrimination occurred, it is open to the company to put forward evidence to challenge that claim, for example the successful candidate may have more experience and qualifications on paper.

10. Ask questions in writing.

If you still have concerns, and you feel the effort, stress and costs of pursuing a claim are worthwhile, consider following things up in writing with the employer, setting our your concerns in writing, and seeking a reply.

At this stage you are expressing concerns based on the evidence you have gathered. It is a chance for you to ask questions, more generally, about their recruitment exercise. You may ask about how many women are employed at the level of management your applied for, compared to men, for example.

The company may ignore your questions – as they are not required to answer them. But their failure to respond, or equivocal replies, won’t make them look good.

Tip: keep a record of all emails you send, and any phone calls. This could be valuable evidence should you bring an employment tribunal claim.

11. Consider making a request for disclosure of documents

There’s nothing stopping you asking for documents. For example, if the interviewer made notes, point that out and ask for copies. Ask for copies of any emails or record of decision-making processes with regard you your rejection.

You may also want to make a Subject Access Request. This is a procedure under the Data Protection Act 2018. It costs you nothing and involves you asking for personal data held about you. The business has to respond in a month.

12. Time-limits, ACAS and Employment Tribunals

There are strict time-limits to bring a claim in the employment tribunal, so don’t delay.

Usually you have three months (minus a day) from the act complained of, to bring a claim. But before you go to an employment tribunal you need to raise a claim via ACAS, through its Early Conciliation Scheme.

13. Settlement and Offers

You may be offered a sum of money to settle your claim. There are advantages to an early settlement deal. It allows you to move on without the costs, delay an risks of an employment tribunal claim.

IMPORTANT: We recommend you take urgent legal advice on the applicable time-limits for your case. The contents of this article do not amount to legal advice. You should consult a solicitor about your situation to obtain legal advice, without delay.