Settlement Agreement Negotiations: Can I Negotiate the Terms?

A settlement agreement is a legally binding document between an employee and employer, often recording the terms of the employee’s termination. Typically, the employee will receive a compensatory payment in exchange for agreeing to waive any claims they may have against their employer. Settlement agreement negotiations are a normal part of the process and are often expected by employers.

If you have received a settlement agreement, you may be feeling nervous and unsure on what to do next – don’t worry this is completely normal! Firstly, it’s important to note that there is no obligation to accept the terms of the agreement. You have the option to reject the offer completely, accept the offer with its current terms, or negotiate on the terms of the agreement. Often, employees will want to negotiate on the terms of the agreement – this is a very normal process and one that employers expect.

What does a settlement agreement usually include?

A settlement agreement will usually be made up of the following key terms:

• Termination date (if applicable) – the agreement will outline an agreed date for the employment relationship to come to an end;
• Notice pay – the agreement should confirm whether notice will be worked or paid in lieu;
• Holiday pay – the agreement should outline whether there is any accrued but unused holiday which will be paid on termination;
• Termination payment – the agreement will usually include a financial compensation element that the employee receives as consideration for entering into the agreement;
• Waiver of claims – the employee agrees to waive their right to pursue legal claims against the employer, for example an unfair dismissal claim.
• Confidentiality provisions – usually the terms provide that the settlement agreement and circumstances surrounding it must be kept confidential.
• Legal fee contribution – it is common for employers to provide a contribution towards your legal fees.

Is the settlement agreement payment fair?

As you are waiving your rights to bring claims against your employer, it’s important that you ensure you are getting a fair deal under the settlement agreement. The main point of contention for most employees is the compensation payment they receive. Ultimately, whether the compensation payment is fair will depend on the circumstances surrounding the agreement and whether the employee has any potential claims against their employer, for example unfair dismissal or discrimination claims, which can justify negotiating a higher compensation payment. Settlement agreement negotiations often focus on the level of compensation offered to the employee.

Other settlement agreement terms you can negotiate

• Notice period – you will want to ensure you are getting paid for your full contractual notice entitlement. You may also want to negotiate a payment in lieu of notice if you want to exit the business sooner and avoid having to work your notice period.
• Company property – typically, a settlement agreement will impose an obligation on the employee to return all company property before their last day of employment. You may want to negotiate on these terms where there are specific items you want to keep, for example, a company mobile phone.
• Reference – sometimes, employees will want to agree specific wording for a reference to ensure clarity for future employment purposes.
• Post termination restrictions – if you have post termination restrictions in your employment contract, for example a non-compete, the settlement agreement gives an employee an opportunity to waive or negotiate these restrictions.
• Bonus – entitlement to bonus is often a point of negotiation, especially where entitlement is triggered shortly after the termination date.

Legal advice on settlement agreements

It is important to note that for a settlement agreement to be valid in an employment context, you must receive independent legal advice on the terms. Typically, a settlement agreement will include a contribution from your employer towards the costs of you getting legal advice on the agreement.

Your legal advisor will meet with you to discuss the agreement. At this meeting, they will advise you on any potential claims you might have against your employer and help you understand whether the terms of the agreement are fair or not. They will also take you through the effect of each clause in the agreement. If you want to negotiate on the terms of the agreement, your legal advisor can help you do so – you are not alone in the process. Having a legal advisor assist you with negotiations can often make the process more successful and less nerve-racking

How can we help?

If you’ve received a settlement agreement and need advice on its terms and assistance with negotiations, please do get in touch with a member of our employment team who would be more than happy to assist.