How to negotiate a good settlement agreement

If you’ve got to go, make sure you leave with a sound settlement agreement making your future a lot easier! Settlement agreements are generally becoming more and more popular due to the fact that discussions of a proposed settlement cannot be used, or referred to, in unfair dismissal claims at an employment tribunal. Signing a settlement agreement means you cannot bring a claim against your employer and it is because of this, independent legal advice needs to be sought before signing it as you will be giving up your rights. Let’s assume you are faced with a settlement agreement. What should you insist on? What do you expect by way of severance terms? The starting point is that you cannot be forced to accept a settlement agreement. Don’t sign on the dotted line in order to preserve your employment law rights. In the event that you wish to enter into discussions, you should always ensure that payments you receive under the agreement compensate you as much as possible for any future loss of earnings until you find a new job. It’s not easy to ascertain how long you will be out of work, but a payment equivalent to six months’ salary is considered to be a good starting point. Any offer will depend on how well you negotiate your package and the relative strength of any claim you may have. It is important to always bear in mind that the first £30,000 of your settlement is capable of being paid without deductions for tax or National Insurance. It is important to ensure that your employer agrees to provide you with an approving job reference in your settlement agreement. This is because employers will not be legally bound to provide one and are unlikely to provide one if you both depart on bad terms. Correspondingly, if there is any unfriendliness between you both, it is vital that there is a term in your settlement agreement which prevents your employer badmouthing you after you have left. However, it is likely that you will have to agree to the same term. Let’s not forget about any bonus payments! Usually, bonus clauses in contracts of employment are discretionary and will not be payed out if you have only worked part of the year. You should consider adding this into your settlement agreement so a deal is reached whereby you would receive any bonus payments. There are many other provisions to look out for in a settlement agreement and it is always best to take independent legal advice if you find yourself in a situation. It probably is a good thing that employers are able to have open discussions with employees without the fear of being taken to a tribunal, however, it could also be an abuse of power by those employers who have more bargaining power and take advantage of employees by getting them to sign away their rights.