Negotiating a settlement

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 seeking to negotiate a settlement of your potential claim in return for some compensation – or, alternatively, your employer may seek to enter into settlement agreement discussions with you. 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, in return for a sum of money from your employer, you will agree not to make a claim in an Employment Tribunal (or to withdraw a claim) and be asked to waive all of your claims and give up your rights to bring claims in the future against your employer in the Employment Tribunal or other courts – your employer is likely to seek to waive not just the specific claim you have brought (or threatened) but any and all claims relating to your employment and (where relevant) the termination of your employment. Please see our advice page explaining ‘what is a settlement agreement‘ for further information.

A settlement can also include a promise or an undertaking to do something — for instance:

• your employer might agree to stop treating you unlawfully, or agree to provide you with a reference;
• you might agree to return all company property, to not ‘bad mouth’ your employer or to not share confidential information about your employer and its business and commit to keeping the settlement 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 still go to an Employment Tribunal, however there are many advantages to negotiating a settlement that you should consider carefully:

• it avoids the stress of running and preparing for a case and going through the Employment Tribunal process to a final hearing (which will include appearing as a witness in the employment tribunal and your colleagues (or former colleagues) may also be appear as a witness on behalf of your employer);
• it may enable you to reach a more friendly outcome with your employer – which will be particularly important if you continue to be employed by your employer following such discussions or if you need a reference from your employer, or you work in a small closed industry;
• it avoids having the dispute with your employer being discussed in an open forum (as the public, including the press, can attend most Employment Tribunal hearings);
• it may avoid your employer raising arguments at an Employment Tribunal to try to undermine your credibility (or believability) which can be an upsetting process;
• it often provides a quicker outcome enabling you to focus on moving forward with your career elsewhere, whereas many cases, particularly complex cases, can take over a year to reach a final hearing;
• there is no guarantee you will win your Employment Tribunal case, however poorly you have been treated – there are likely to be scenarios where, though your employers behaviour is unkind or hurtful, your employer are able to use legal arguments or surrounding facts to disprove any alleged breach of their obligations to you; and
• you can negotiate outcomes that are important to you that the Employment Tribunal does not have power to order even if you win, such as agreed wording for a reference, out-placement counselling (for example in assisting you with your CV or interview techniques), a form of internal or external announcement or an apology.

You should also consider our guidance on ‘Things to think about before bringing an Employment Tribunal Claim‘.

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: 

Tips for negotiating a settlement

When negotiating a settlement, you should consider the following tips for the best chances of 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 ensure that you have a good idea of the types of claims you might be able to bring, the strength of your claim and the value of the Employment Tribunal would award you if you won. See our advice page on Compensation. See our advice page on Compensation.

You should also consider any fees (such as legal fees or childcare fees) you may incur in taking the claim to the Employment Tribunal and any loss of earnings from having to take time off work to prepare for and attend any Employment Tribunal hearing. Of course, the loss of your free time and the stress of an Employment Tribunal process is also an important consideration.

By seeking to agree to a settlement at an earlier stage – there may be both financial and non-financial benefits to you that you should consider seriously when determining the minimum amount that you would be willing to settle for. We also note that some compensation payments may be free of tax (as explained below) which may increase the value of the payment to you.

In particular, if your chances of success at the Employment Tribunal are low, or if the amount you could hope to receive from the Employment 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 an Employment Tribunal claim. There is information on how to assess how much you might be awarded if you went to the Employment 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. They may also withdraw their offer in certain circumstances.

For information on the types of terms that you might be able to negotiate beyond just the financial element, please see the section on ‘Understanding key terms’ on our advice page explaining ‘what is a settlement agreement‘.

As mentioned above, timing may be an important consideration for your employer.

3. Show you are serious 

You should make it clear to your employer that you are prepared to go ahead with an Employment 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 and/or if they are not convinced in the strength of your claim.

It will be important in any without prejudice conversations to highlight why you have a strong case. You should be firm but not antagonistic or unreasonable 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.

Important!
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. Ordinarily you would use the words “without prejudice and subject to contract” until you enter the agreement.

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 of employment (ex gratia payments) are taxable subject to the £30,000 tax-free exemption. We are unable to advise on tax status of any payments due to you as this is outside of the remit of our advice service.

The settlement agreement

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

• agree to a ‘settlement agreement‘ (a legal contract between you and your employer)
• negotiate a COT3 agreement through Acas

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

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 Employment 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, health professionals or any other professional advisers or legal representatives. For information on terms regarding confidentiality, please see the section on ‘Confidentiality’ on our advice page explaining ‘what is a settlement agreement‘. You also may agree how it will be communicated that you left employment e.g. that you resigned or that you decided to focus on your family etc.

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 Employment 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 six weeks. From 1 December 2025 this 6 week period will be extended to a maximum of 12 weeks for any conciliation forms submitted on or after 1 December 2025. 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. If you are in Northern Ireland you can visit the Labour Relations Agency or call their helpline Workplace Information Service on 03300 555 300.

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