Negotiating a settlement

Last updated: 13 Jun 2022

If you are being dismissed, made redundant or have a problem with your employer and are considering a claim in an Employment Tribunal, you may be considering a settlement. This article gives an overview of settlement agreements, what they are and how to negotiate a settlement

What is a settlement?

A settlement is a binding agreement between you and your employer or former employer. Typically in a settlement, you agree not to make a claim in an Employment Tribunal (or to withdraw a claim) in return for a sum of money from your employer. 

A settlement can also include an undertaking to do something – for instance, your employer might agree to stop treating you unlawfully, or to provide you with a reference.  

You may also commit in the settlement agreement to keeping the agreement and the circumstances leading up to the agreement confidential. 

If you don’t want to settle, or if you can’t agree on terms which address your concerns, you can go to an Employment Tribunal instead. However, there are many advantages to negotiating a settlement: 

  • it avoids the stress of running a case and going through the Employment Tribunal process to a final hearing 
  • it provides a quicker outcome, whereas many cases, particularly complex cases, can take over a year to reach a final hearing 
  • there is no guarantee you will win your tribunal case, however badly you have been treated 
  • you can receive  things that the tribunal does not have power to order even if you win, such as a reference or an apology 

How to settle

Your employer may approach you to discuss a settlement first (for instance, if you are being made redundant or if you are being dismissed). However, you can also start the negotiation process. 

To start the process, you can consider doing the following: 

Send your employer a ‘without prejudice’ letter

To settle with your employer, you can send a letter offering settlement before you submit a claim to the Employment Tribunal. This is called a ‘without prejudice’ letter.

This letter should state on it that it is “without prejudice” – this means that neither party can use what is said in the letter for the purposes of its case in the Tribunal. This allows you to negotiate freely without being concerned about the content of the negotiations being raised before the Tribunal.

The “without prejudice” letter can be written by you or your representative if you have one acting for you. It is also common for the employer to send a without prejudice letter to you.

Start early conciliation with Acas

You must submit an early conciliation notification before starting a claim in the Employment Tribunal. However, it is voluntary whether you conciliate or not as either party can refuse to participate in the process.

Acas is an independent, impartial organisation which communicates with the employer and employee regarding a possible settlement. Acas can help the parties reach a resolution without needing to proceed to the Employment Tribunal. Since May 2014, it has been required for most cases to attempt early conciliation through Acas before commencing a claim.

There is no charge for using Acas. Read the Acas guidance on the conciliation process.

Agree to mediation

Mediation can be helpful in appropriate circumstances and can be used at any time during proceedings. Mediation usually involves an independent mediator facilitating a meeting between you and your employer with the aim of achieving an agreement acceptable to both. Mediation can be extremely effective, particularly when used in the early stages of a dispute.

During early conciliation, an Acas Conciliation Officer provides mediation for free. However, in private mediation, parties will have to pay for a third party to help them reach a settlement, which can be expensive. DRAW provides a free mediation service that you may qualify for.

In cases where proceedings have been issued, the claim may be suitable for judicial mediation by an employment judge.

Tips for negotiating a settlement

When negotiating a settlement, you should consider taking the following tips for success:

1. Decide how much you want to settle for– what is your ideal outcome, and what is the minimum you would be willing to walk away with? 

To decide how much you would be willing to settle for, you should consider how strong your case is and much the Tribunal would award you if you won. See our advice page on Compensation: [INSERT LINK].  

If your chances of success at the tribunal are low, or if the amount you could hope to receive from the Tribunal if you won is small, consider settling for a lower amount than the maximum you would hope to receive in the Tribunal. 

Be sure to seek advice if you’re unsure what your claim would be worth, and the likelihood that you would succeed in a Tribunal claim. There is information on how to assess how much you might be awarded if you went to Tribunal and you should use this figure as a basis to negotiate from. See our guide to calculating damages for help on this. 

2. Work out what your offer or counter offer should be 

When negotiating, start with a figure higher than the lowest that you would be happy to settle for. Your employer will expect you to compromise on what you originally ask for. If you start with a low figure, you will end up with an even lower one. On the other hand, if you start with an unrealistically high figure, your employer may refuse to negotiate altogether. 

Similarly, employers do not usually start with their highest offer and will usually offer something a bit higher if you negotiate. Having said that, some employers can be very rigid and refuse to increase their offer at all. 

3. Show you are serious 

You should make it clear to your employer that you are prepared to go ahead with a Tribunal case if no settlement is reached. Your employer may not make you an offer at all if they believe that you will not actually pursue the claim. 

You should be firm but not antagonistic in the tone of any letters you write or conversations you have. If you upset the person you are negotiating with, you are less likely to get a good deal.

During negotiations, you should be careful to ensure that the terms of the settlement agreement are expressed to be not binding until the agreement is signed by all parties. 
Also note that the amount agreed will not necessarily be tax free. Outstanding wages, bonuses, commission and holiday pay are all fully taxable. Non-contractual sums paid as compensation for loss of employment (ex gratia payments) are taxable, but subject to a £30,000 tax-free exemption.

The settlement agreement

There are two ways of settling and giving up your right to go to an Employment Tribunal:

For more on settlement agreements, see our article on settlement agreements and COT3s.

Once Common terms of a settlement agreement include promises from your employer to pay you a sum of money, stop treating you unlawfully, provide you with an apology and/or a reference. In return, you may promise to waive your rights to bring a claim in the Employment Tribunal or court (or to withdraw a claim you have already submitted). This means that you cannot bring the same claim or a similar claim about the same matter before the Tribunal in the future. 

Your employer may also ask for you to promise that you have not discussed the complaint with anyone else and that you will keep the agreement confidential going forward. It is therefore best to avoid discussing your situation with anyone apart from close family or legal representatives. 

Time limits

Generally, you must bring a claim before the Employment Tribunal three months less a day from when conduct complained of (e.g. the dismissal or discrimination) occurred, depending on the nature of the claim. Find out more information on time limits

It is essential that tribunal time limits are kept in mind when conducting any negotiations before starting a claim. Time limits will not be extended just because negotiations are on-going between you and your employer or because it was thought that a settlement was about to be reached. 

The exception to this rule is during early conciliation with Acas. When you contact Acas, the time limit is ‘paused’ for one month (and an additional 14 days if this extension is needed). The time begins to run again from when you receive formal acknowledgement that early conciliation is finished. 

This advice applies in England, Wales and Scotland. If you live in another part of the UK, the law may differ. Please call our helpline for more details. If you are in Northern Ireland you can visit the Labour Relations Agency or call their helpline Workplace Information Service on 03300 555 300.

If you have further questions and would like to contact our advice team please use our advice contact form below or call us.

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The information on the law contained on this site is provided free of charge and does not, and is not intended to, amount to legal advice to any person on a specific case or matter. If you are not a solicitor, you are advised to obtain specific legal advice about your case or matter and not to rely solely on this information. Law and guidance is changing regularly in this area.

We cannot provide advice on employment rights in Northern Ireland as the law is different. You can visit the Labour Relations Agency or call their helpline Workplace Information Service on 03300 555 300.