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Negotiating a settlement agreement


Negotiating settlement agreements can be a daunting prospect, and in this article we take an in-depth look at how you, the employee, should go about it. Don’t be fooled by the humour we have injected into our negotiating guide below. This is a deadly serious topic and we have imparted much of our knowledge as specialist employment lawyers; for employees’ eyes only!


Top 3 TIPS

[1] Submit a formal written grievance

[2] Resign

[3] Issue an Employment Tribunal claim.


No more Mr Nice Guy

Unsurprisingly, asking employers nicely for large lump sums of cash just doesn’t work. Remember its not what you ought to receive because you’ve been such a loyal employee and generally nice person. Its what they owe you for the mistreatment afforded and for forcing you out of your job in one way or another. No need to be nasty, but you’re going to need to be a tough negotiator. Its not for the feint hearted, even if you do have lawyers on your side you’ll still need to be prepared to dig in for a fight. Hopefully it’ll be worth it.


But don’t burn your bridges

Its no good ranting and raving about how badly you’ve been mistreated and how you’re going to rain down vengeance upon your employer should they refuse to agree to your demands. This is not a hostage situation! No matter how badly you’ve been treated, try to maintain a sense of decorum. There’s nothing wrong with stating matter-of-factly in a without prejudice letter, than unless the compromise agreement negotiation is successful, you will see them in court. But try to take the emotion out of the situation, at least no more emotion than strictly necessary. We’re not asking you to hide your feelings, just don’t come across as too bitter.


Carrot and the stick

So you need to strike the balance between the carrot and the stick. Offer something to your employer, in terms of the concessions which they want. For example your resignation and a confidentiality clause or maybe a smooth handover to your successor. At the same time point out to them the harsh realities of not doing a deal with you, such as ending up in a long costly tribunal which will see them out of pocket win loose or draw.


Aim high, but not too high

Its important to be realistic and figure out how much your potential claim is worth, and also what you would be happy with. To get a bit more help with this, see our article on how much money you should get. Once you’ve calculated that, double it, and you’ve got your upper negotiation limit. This starting point allows the other side to knock you down to half, and think they’ve done well. Never start at the point where you want to end up – its human nature to want to knock people down in a compromise agreement negotiation as with any other type of negotiation.


Claim within 3 months

Whatever happens, don’t let your compromise agreement negotiation push you over the strict 3 month time limit for tribunal claims. Your employer may try to stall you or string out the negotiations in the hope that you do miss this deadline, and if you do, then you might as well forget it, because tribunals are very strict about this. Learn more in our time limits article.



Anyone who actually resigns due to alleged constructive dismissal could be taken more seriously when negotiating a compromise agreement. The thing about constructive dismissal is that if you are being badly treated but yet you choose to stay in your job, then you can be taken to have accepted that mistreatment, and you can’t then resign at a later date. Perhaps you can sit it out while the grievance process takes places, but once that is exhausted you really do need to resign asap and not hang about. This will strengthen your position when negotiating a compromise or settlement agreement because you will be seen as a person of action and not just words, therefore more likely to sue the b’stards.

But a word of warning – when you do resign, be sure to word your resignation letter correctly. Specify your last day. If you plan to work out your notice then you can still do this and claim constructive dismissal – you don’t have to resign on the spot. Its a tough one to guage correctly, but in any case the three month time limit for claims can start to run from your last day actually in the office, regardless of your official resignation date.


Notwithstanding the above advice, it can actually help you to not resign in certain circumstances. This may be for example whereby your employer would rather you leave, but they don’t want to dismiss you. In this situation, resigning can be a negotiating chip for you whereby your promise to resign motivates your employer to increase any payout. This will need careful consideration in each case.


Save tax

There are tax breaks available for compromise and settlement agreements, and both sides can benefit from these. Have a look at our tax article to learn more, but the most common break is £30,000 tax free as an ex gratia payment. Point this out to your employer and couch it in terms that you could both walk away better off. Most employers are so risk averse when it comes to tax that they won’t even use this tax break to pay you your notice pay tax free, but its definitely worth asking. We may even be able to ask for this simply as part of the compromise agreement signing fee.


Inside information

If you have any information relating to malpractice by your employer, which would help to motivate them to give you a better deal, then what better time to mention it than when negotiating a compromise agreement? It is especially relevant whereby such behaviour is the cause of you having to resign in the first place. Indeed, by revealing the company’s bad behaviour, you are probably helping to ensure that they change their ways going forwards. Of course you cannot blackmail your employer by asking for money just to keep quiet about certain information; but it can be used to point out the strength of your potential claim, and therefore be a perfectly legitimate bargaining chip.



Its standard practice to throw in a confidentiality clause when negotiating a compromise agreement. So you can list the things you want, such as an ex gratia payment, outstanding holiday pay, and then mention that you will be happy to sign a confidentiality clause confirming that the circumstances surrounding the termination of your employment will remain confidential. This is worth mentioning when the company knows its been up to no good, and it knows that you know too.


Things to avoid

Don’t openly threaten to sue them because this can be construed as breaching the relationship of trust and confidence which is supposed to exist, and technically it could be a firing offence. We say ‘openly’ because you can and should mention this in a without prejudice letter or meeting. Read more about how to use the without prejudice doctrine in your compromise agreement negotiation here. Don’t say that the trust and confidence has broken down either.



Set a deadline in your without prejudice letter and say that the offer will be withdrawn if it is not accepted by that deadline. And stick to it. Its no good running a settlement agreement negotiation using deadlines and then giving the other side one more chance – they’ll think you’re soft – so only brandish deadlines if you’re prepared to use them. The type of event to threaten, apart from withdrawing the offer, can include issuing a tribunal claim (well worth it for the £250 issue fee) or resigning. Also remember you can use the words ‘final offer’ when you’ve really reached your bottom line.



Submitting a grievance is a great way to further a compromise agreement negotiation. By requiring a written response, formal grievances force the employer to address the issue head on rather than turning the other cheek and hoping you’ll go away. It is also a handy way to see what defence the employer has up their sleeve before you issue your tribunal claim. You can flush out any cheeky moves which they are planning to make in their defence, so that you can really fine tune your claim and anticipate their response.


Small print

When you reach a level of compensation or damages which you would be happy to accept in your negotiation, don’t rush in their and show your pleasure and accept the deal before you’ve seen the small print. Instead, play it cool, say you’ll have to think it over, but in the mean time could they send over a draft compromise agreement (which is now called a settlement agreement). This allows you to see if there are any banana skins in the small print which could scupper the deal. It’s a lot easier to negotiate the wording of a compromise agreement before you have given away that you are dead happy with the money element, otherwise a savvy employer would simply insist you sign their wording as they know you don’t want to fight any more.


Instructing lawyers

If you approach your employer with specialist employment lawyers representing you, they will take a lot more notice of what you are saying, and this will really put them on the back foot in the settlement negotiations. Aside from the obvious points that they know you really mean business and might well end up in tribunal, you will also have the benefit of the legal advice itself. And a lot of employers don’t like speaking to lawyers who represent their employees because they are afraid of anyone who is able to stand up to them. They will also have to spend money on instructing lawyers themselves, whereas they would probably rather give it to you to make you go away.


Next steps

We would recommend an initial telephone call with you to provide you with a quote and an action plan. If you want to find out more, get in touch on 020 7717 5259, 0800 533 5134, [email protected], or click here to arrange a call at a convenient time.



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