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How to Calculate a Settlement Agreement Figure

06 March 2018

The amount of Settlement Agreement compensation that an employer will offer an employee will depend on any contractual and/or statutory entitlements and also the circumstances of any potential Employment Tribunal claim that the employee could bring.

If you have been offered a Settlement Agreement, it’s essential to obtain legal advice from an Employment Solicitor who can advise you on the next steps to take.

What is a Settlement Agreement?

Settlement Agreements (formerly known as Compromise Agreements) are legally binding documents which are often put in place between an employer and an employee to settle any potential claim before it reaches the Employment Tribunal.

The Settlement Agreement will usually include a one off payment, paid by the employer to the employee, as well as terms that have been agreed between them. This agreement must be in writing.

Both sides can negotiate the settlement until an agreement is reached. In order to make the Settlement Agreement legally binding, the employee will need to have received independent legal advice from an Employment Solicitor, who is qualified to give legal advice on the terms of a Settlement Agreement.

Once the agreement has been signed, the employee will no longer be able to make an employment tribunal claim for any type of complaint that has been set out in the agreement. 

When are Settlement Agreements Used?

It may be that the employee’s employment rights have been breached, that there is a dispute between the employee and the employer or that one or both parties want to terminate the employment relationship. If the employment is being terminated, a Settlement Agreement offers the employee and the employer the opportunity to agree the terms for ending the employment.

Alternatively, a Settlement Agreement can be used to reach a conclusion to a workplace dispute, without terminating the employment. 

There are also instances where a Settlement Agreement might be made between an employer and someone who is not an employee. This could, for example, be someone who applied for a job and felt that they were discriminated against during the recruitment process or it could be an external supplier.

How are Settlement Agreements Calculated?

Numerous factors will need to be taken into consideration when calculating a Settlement Agreement. You should get independent legal advice before agreeing to or accepting any settlement that you have been offered. 

Some of the points that both the employer and the employee might want to consider include the reason for the settlement being offered and how long it might take to resolve the issue if a settlement wasn’t reached. Other factors that are likely to influence the amount offered include the employee’s salary, how difficult they might be to replace, how long they have been employed for and how long it might take the employee to find another job.

It’s also important to review the terms of the employment contract, to ensure that appropriate payment is offered for things such as unused annual leave and any notice period that has been set out. There may also be terms included in the contract relating to remuneration, which would also need to be taken into account. 

How to Negotiate a Settlement Offer

If you are offered a Settlement Agreement, you need to be allowed a reasonable amount of time to consider the offer and to obtain independent legal advice. The ACAS guidelines suggest a minimum period of 10 calendar days for this, but alternative timeframes can be agreed between you and your employer.

Before beginning Settlement Agreement negotiations with your employer it’s important to have a firm idea of the figure you are hoping to achieve. This figure should be realistic and it’s advisable to keep negotiations as amicable as possible. You can choose to negotiate either in person or in writing, but regardless of which method of communication you choose, it’s a good idea to start any correspondence stating that you’re speaking “without prejudice.” This essentially means that you’re communicating off the record and the correspondence cannot be used in an Employment Tribunal. 

At Co-op Legal Services, our Employment Solicitors can advise you on the terms or clauses of your Settlement Agreement and on the appropriate amount of compensation. If you do not feel comfortable conducting negotiations yourself, our Employment Solicitors can also negotiate with your employer on your behalf.

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