Negotiating a settlement

Settlement options should always be considered before commencing a claim at the Employment Tribunal, and should be kept in mind throughout the proceedings.

This page provides an overview of:

What is a settlement?

Under a settlement agreement, you will agree not to pursue or to withdraw your claim and, in return, your employer will provide an agreed sum of money. A settlement can also include an agreement for an employer to provide a reference.

The advantages of a negotiated settlement include that:

  • it avoids the stress of running a case and going through a hearing;
  • it provides a quicker outcome;
  • you are more in control of the result. There is no guarantee you will win your tribunal case, however badly you have been treated; and
  • you can ask for things which the tribunal does not have power to order even if you win, such as an agreed reference or an apology.

How to settle?

Using the ACAS Early Conciliation

  • It is compulsory to submit an Early Conciliation notification before starting a claim.
  • 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 a mandatory for most cases to attempt Early Conciliation through Acas before commencing a claim.

The Early Conciliation process requires you to provide certain information to Acas via an Early Conciliation form or by telephone. An Early Conciliation Support Officer will then contact you, explain the process and ask if you want to pursue a settlement. The Officer will then contact the employer and ask if the employer wants to pursue settlement. If the parties agree to conciliate, the Acas Officer will talk to both the parties or their representatives and try to find common ground to reach an agreement.

There is no charge for using Acas. Guidance on the conciliation process can be found here.

Sending your (ex) employer a without prejudice letter

You can send a letter offering settlement to their employer before the claim is sent to the tribunal or at any time during the proceedings. This letter should state on it that it is “without prejudice.” If the letter is a genuine attempt to try to resolve the dispute with your employer, writing the words “without prejudice” will ensure that the tribunal does not see the letter if negotiations fall through and the case goes ahead. “Without prejudice” means that neither party can rely on what was said during the negotiations for the purposes of its case before the tribunal. This allows the parties 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 (a worker or employee) – see an example here or, if you have a representative acting for you, by your representative, see an example here. It is also common for the employer to send a without prejudice letter to you.

Going through mediation

Mediation can be helpful in appropriate circumstances and can be used at any time during proceedings. Mediation will involve 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. Whilst the Acas Conciliation Officer provides mediation for free, in private mediation, parties will have to pay for a third party to help them reach a settlement, which can be expensive. In cases where proceedings have been issued, the claim may be suitable for judicial mediation by an employment judge.

Settling at the tribunal hearing

Settlement can sometimes be reached at the tribunal hearing itself. You and your employer, or your representatives, can negotiate during breaks or with the permission of the tribunal and agree at any time before the tribunal makes its decision to settle the case.

Tips for negotiating a settlement

First decide how much you want to settle for,

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 here for help on this. To decide how much you would be willing to settle for, you should consider how much the tribunal would award you if you won and how strong your case is.  If chances of success at the tribunal are small, the settlement amount may have to be significantly smaller than the potential award.

Then work out what your first offer should be,

When negotiating, never start with the lowest figure that you would be happy to settle for. You 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.

Show you are serious and mean business,

It must be 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 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.

When agreeing the settlement value, you should be aware that the amount agreed will not necessarily be tax free. Outstanding wages, bonuses, commission and holiday pay are fully taxable. Non-contractual sums paid as compensation for loss of employment under the terms of the settlement agreement are taxable, but subject to the £30,000 tax-free exemption.

The settlement agreement itself

What to put in a settlement?

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; or
  • provide you with a reference.

You will promise in return to waive your rights to bring the claim in the employment tribunal or court. 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 warrant (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 work situation with anyone apart from close family or legal representatives.

What form should it take?

Where a settlement is agreed through an Acas Officer, the Officer will write out the agreement on a ‘COT 3’ form. Both parties will sign this as a formal record of the agreement. Any agreement made through Acas, even verbally, is binding and prevents you running a tribunal case on the matters which have been settled.

Where Acas is not involved, such as when parties communicate via “without prejudice” letters or agree to settlement at the tribunal hearing, the terms of the settlement should still be set out in a written agreement. This is also a binding settlement. The following conditions must be met for the settlement agreement to be valid:

  1. The agreement must be in writing;
  2. The agreement must relate to a particular complaint or proceedings;
  3. You must have received advice from a relevant independent adviser on the terms and effect of the proposed agreement and its effect on your ability to pursue that complaint or proceedings before an employment tribunal or other court;
  4. The independent adviser must have a current contract of insurance or professional indemnity insurance covering the risk of a claim by the employee in respect of loss arising from that advice;
  5. The agreement must identify the adviser; and
  6. The agreement must state that the statutory provisions which set out the above conditions regulating the volatility of the settlement agreement have been met.

Your employer will often be willing to pay for you to take advice from an independent solicitor who can sign and advise on the settlement agreement. Otherwise, it may not be possible for you to have access to legal advice which means the settlement agreement would not satisfy the necessary requirements. If you or your employer breaks promises made in the settlement agreement, the other party may be able to bring a claim before the court for breach of contract.

Time limits

Generally, you must bring a claim before the Employment Tribunal three calendar months from when conduct complained of (e.g. the dismissal or discrimination) occurred, depending on the nature of the claim. Information on time limits can be found here. 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.

Further information

More information on what is (and what you need to check on) a settlement agreement and a COT 3 can be found here.

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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