Do you want to negotiate a better deal on your settlement agreement?
Often an employer will offer an employee a sum of money, expecting them to come back and make a counter-offer. Here are a few tips to maximise your chances of getting the best possible deal.
If your boss calls you into a room, sits you down and offers you a settlement agreement, they may want a response straight away. What should you do?
Our advice is that you ask for a few days to think about the proposed severance package.
Depending on your experience, you may never have been in this situation before. What is a settlement agreement, and why are they offering you one? Take your time to find out.
The ACAS Code of Practice on Employment Settlement Agreements recommends that employees are given at least ten days to consider a settlement offer. Although this isn’t required by law, it is something that all employers should consider.
This gives you time to:
Be an idealist for a moment!
Think about what you’d really be happy with in this settlement agreement. What’s most important to you? What are the ‘nice-to-have’s?
What’s the least that you’d settle for?
Deciding your bottom limit is important as it ensures you’re not a pushover!
Some things may be really important to you and won’t cost your employer anything. An obvious example is a reference. A settlement agreement is a really good opportunity to negotiate a fantastic reference. You could even write it yourself and ask your employer to endorse it! It will really help you and won’t cost your employer a penny!
Similarly, there may be some factors that are crucial for your employer that you’re not too bothered about. For instance, employers usually like to keep termination payments confidential. As part of the settlement agreement, you can agree not to breathe a word about the deal to anyone. Most employees are happy with that.
When considering what counter-offer to make, take some time to think about what you really want in the settlement. Give careful thought to the best-case scenario.
At the same time, think about your worst-case scenario. What’s your bottom line for an acceptable settlement? If you’re able to answer these questions, you’ll be much better placed to begin the settlement agreement negotiation process.
Why should your employer accept your counter-offer?
Most companies won’t want to pay staff any more than the law requires. You need to consider your employer’s incentive to pay you a higher financial settlement. Why should they be open to negotiation?
For example, it may be that if you refuse the proposed agreement, you could claim compensation in an Employment Tribunal. The incentive to pay you more money is that, in return, you will agree not to pursue any legal claim. Alternatively, your employer may feel a sense of moral responsibility to pay you more, even if they haven’t done anything wrong.
When making a counter-offer, which tactics will you use?
This may be sensible where your employer is offering you far less than you would be awarded in an employment tribunal.
Essentially, you’re saying to your employer, “Unless you pay me more money, I’m taking you to a tribunal!”
This is a potentially hostile approach which may be appropriate where, for example:
If you want to approach the negotiations in this way, make sure you get legal advice from an employment solicitor who can advise you on your rights.
Sometimes a gentler approach can yield better rewards.
You may not have any commercial or legal leverage to persuade your employer to pay you more money. In other words, the law does not require them to pay you any more than they are already offering in the proposed agreement.
This is most likely to be the case where:
However, it may be that you can get a better offer by doing the settlement agreement negotiation on the basis of goodwill. There may not be any commercial incentive for them to pay you more, but they may genuinely want to be helpful and show gratitude for your hard work.
Your grounds for settlement negotiation may include factors that an Employment Tribunal would not take into account. This may include:
These tactics often work better with smaller companies where there’s a family feel to the business. If you don’t have this kind of relationship with your employer, this approach to negotiation may not be appropriate.
Your employer should ideally make the settlement offer in the context of a protected conversation. Discussions in a protected conversation are generally ‘off the record’. That allows both you and your employer to speak freely without worrying that the other party will use their words against them. It’s similar to the without prejudice rule.
If your employer doesn’t invite you to a protected conversation, you may want to ask for one yourself. This signals to your employer that you’re taking matters seriously and want to ensure the process is conducted correctly.
You may find it helpful to read the ACAS Code of Practice on Settlement Agreements, which contains some useful information about protected conversations.
You may have heard in the news about former employees being awarded enormous amounts of money by an Employment Tribunal. You should not presume that you will get the same.
Some of these calculations may need to be estimated (for example, you don’t know how long it will take you to find another job). However, be reasonable in your assessment. Don’t exaggerate, or you will lose credibility.
There’s no harm in making a counter-offer that is at the top end of what you can reasonably expect. After all, your employer is likely to try to negotiate down. However, if you ask for too much, your employer is unlikely to take you seriously.
Some employees are embarrassed about asking their employer for more money. They don’t want to ask for a large amount of money, even if it’s reasonable. This may be because:
However, this could lead to you getting less than you should. This may mean that you experience financial difficulties unnecessarily.
Be confident in asking for what you’re entitled to. Be respectful and courteous in your communications but don’t sell yourself short. Be prepared to justify why you’re asking for a certain sum of money. For example, you could explain to your employer the difficulties you will face as a result of losing your job and how long it’s likely to take you to find another one.
Make sure you understand the tax position when considering a settlement offer. Otherwise, you may find you don’t receive as much money as you expected.
The tax status of the various financial amounts in a settlement agreement depends on the nature of the payment.
As a general rule, a termination payment is tax-free for up to £30,000. This includes any statutory redundancy payment.
However, most other payments, such as a payment in lieu of notice, are taxable.
For more information about how HMRC views termination payments, read this article about settlement agreement tax.
In many cases, the most significant aspect of a settlement is the termination payment. The amount of money you receive is clearly going to be important, particularly if your employment is coming to an end.
However, there are other factors that you should take into account when negotiating.
For example, a settlement agreement is a good opportunity to agree on a fantastic reference with your employer. There is no law requiring an employer to give a reference. However, even if your employer is unable or unwilling to pay you more money, it won’t cost them anything to provide you with a positive reference. This can then be annexed to the agreement.
If your employment contract contains restrictive covenants that prevent you from working for a competitor or dealing with your employer’s customers. You may want to ask for a clause in the settlement agreement that releases you from those restrictions. This will help you in your search for alternative employment.
Some employers provide outplacement support. This usually consists of guidance with finding another job, assistance with preparing a CV and help with interviews. The aim is to prepare you for the job market. You may want to ask your employer to include this as part of the agreement.
Other benefits you could ask for may include:
The free consultation is an opportunity to get answers to some of your questions. Your solicitor will advise you on factors such as:
You will receive advice, not only on the law and the financial amount offered in the settlement, but also other benefits you may be able to achieve.
When you’ve thought everything through and obtained legal advice, it’s time to make your counter-offer. You can do this verbally or in writing.
If you’re making your counter-offer in writing, it is usually best to do that by email. For more information about how to do that, read our guide to making a counter-offer, which includes a free template.
However, there are advantages to negotiating verbally. For example, it helps to maintain rapport and empathy. Here are some tips if you’re negotiating verbally.
Anchors are parameters that set the frame of reference for the rest of the conversation.
Pick a figure that you want but is still sensible. If you ask for too much, you come across as naïve or unreasonable.
But still make sure it’s your best offer.
Silence can be a great weapon in any negotiation. Don’t over-explain what you want. By remaining quiet, you come across as much more confident.
Listen to how your employer responds. Is there room for manoeuvre?
What are you willing to concede on to reach a settlement?
A good negotiator will put themselves into the shoes of the other party.
Instead of launching into an argument, ask a few questions to find out what your employer really wants to achieve. What are their priorities?
For example, if your employer has proposed a termination date of the 30th November and you’d prefer to finish sooner, ask why they want you to finish on that date. What are the factors that prevent them from ending your employment sooner?
By approaching your employer this way, you can determine their motivations and decide how best to approach the negotiation.
Make sure you’ve understood your employer fully. Recap what they’ve said so they know you’re listening and taking them seriously.
Whilst you shouldn’t under-settle, do your best to reach a mutually agreeable settlement if you can.
If you reach an agreement in principle, make sure you find out what happens next. It’s usually the job of the employer to draft the settlement agreement, but you may want to email your employer just to re-state what has been agreed. This can help avoid confusion at a later date.
Once they send you the settlement agreement for approval, have a read of it and make a note of any questions you may have. Then forward it to your solicitor for advice.
If you’ve received a settlement agreement, you’ll need to make sure you receive legal advice on it.
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