In the world of employment, it’s not uncommon for employers to offer a financial settlement to their departing employees, expecting them to engage in a counter-offer negotiation. If you’re looking to maximize your chances of securing the most advantageous settlement terms, we’ve got you covered with some expert tips.
1 – Strategise for Effective Settlement Agreement Negotiation
Imagine your boss calls you into their office, presents you with a settlement agreement, and anticipates an immediate response. What’s your best course of action?
Don’t rush into it!
Our recommendation is to request a brief period to deliberate over the proposed severance package. This decision-making interval is crucial, especially if this is your first encounter with a settlement agreement. You must understand what this agreement entails and why it’s being extended to you.
While not mandated by law, the ACAS Code of Practice on Employment Settlement Agreements suggests that employees should be given at least ten days to review such offers. This pause allows you to contemplate the terms, seek legal counsel, and formulate a considered response.
Aspirations and Bottom Lines
Think about the best-case scenario: What would genuinely satisfy you in this settlement agreement? Identify your priorities and the ‘nice-to-have’ elements.
Conversely, determine your worst-case scenario. What is the absolute minimum you’d be willing to accept? Setting this threshold ensures you won’t compromise too readily.
Consider what holds high value for you but might not have substantial significance to your employer, and vice versa. An excellent example is a job reference—an opportunity to negotiate a compelling reference that could be composed by you and subsequently endorsed by your employer. This wouldn’t impose any financial burden on them.
Concurrently, you should acknowledge facets that are indispensable for your employer but may not significantly affect you. For instance, your employer might emphasize confidentiality regarding termination payments. This is a common request within settlement agreements, and most employees tend to comply with it.
Armed with these reflections, you’ll be better equipped to initiate the negotiation process surrounding the settlement agreement.
2 – Choosing the Right Negotiation Approach
The question to address here is why your employer should entertain your counter-offer in the first place.
If your employer’s initial offer significantly falls short of what you might expect through legal channels, you can adopt a strict legal approach. Essentially, you’re signaling to your employer that, unless the financial terms are improved, you’ll resort to legal proceedings.
This approach is apt when:
- Your employer has acted unjustly or unreasonably.
- The working relationship has deteriorated.
- You are genuinely contemplating legal action.
Should you opt for this negotiation tactic, it is imperative to seek legal advice from an employment solicitor who can elucidate your rights and potential legal actions.
Appeal to Goodwill
In certain cases, a more conciliatory approach might yield superior results. If you lack robust legal or financial leverage to press for higher financial compensation, you can lean on goodwill. While the law may not necessitate your employer to exceed their initial settlement offer, they may have genuine intentions of acknowledging your contributions and hardships.
This goodwill-based approach can be particularly effective when:
- You have less than two years of tenure with the company.
- The settlement offer is proposed as an alternative to redundancy.
In such instances, you can explore the possibility of securing better terms grounded in goodwill. Your unique contributions to the company, the personal impact of job loss, or sacrifices made for your employer can become the focal points of your negotiation. This strategy often works more effectively with smaller businesses or those with a familial atmosphere. If such a close-knit relationship does not exist with your employer, an alternative negotiation approach may be more suitable.
3 – Request a Protected Conversation with Your Employer
Ideally, your employer should initiate settlement offer discussions within the context of a protected conversation. These conversations are ‘off the record,’ allowing both parties to converse freely, confident that their words will not be used against them. This confidentiality aspect closely resembles the ‘without prejudice’ rule.
If your employer doesn’t extend an invitation for a protected conversation, it’s within your rights to request one. This action signals to your employer that you’re taking the matter seriously and want to ensure that the process is carried out correctly.
For a more comprehensive understanding of protected conversations, you might find it beneficial to peruse the ACAS Code of Practice on Settlement Agreements.
4 – Appropriate Valuation
It’s important not to set unrealistic expectations when negotiating a settlement agreement. High-profile cases of ex-employees receiving enormous sums from Employment Tribunals shouldn’t necessarily lead you to anticipate similar outcomes.
Several factors influence the settlement agreement’s reasonable valuation, including your salary, the expected duration of your job search, your length of service with the company, any contract terms that entitle you to extra compensation, and, in some instances, compensation for emotional distress (often referred to as “injury to feelings”).
These calculations may involve estimates since you might not know how long your job search will take. However, ensure your assessment remains realistic, as exaggerating can harm your credibility. While it’s acceptable to initiate the negotiation with an offer at the higher end of the spectrum, you should steer clear of seeking an exorbitant sum that could jeopardize the negotiation process.
5 – Self-Advocacy without Hesitation
Some employees might feel hesitant about requesting more favourable financial terms, even when it’s justified. This apprehension can stem from concerns about appearing selfish, maintaining loyalty to the employer, or preserving a harmonious relationship. However, such reluctance could lead to settling for less than what’s rightfully deserved, resulting in unnecessary financial difficulties.
Embrace the confidence to demand what you’re rightfully owed, always maintaining respect and courtesy in your communications. You can justify your request by outlining the challenges you’ll face following job loss and estimating the time required to secure new employment.
6 – Financial Implications: Understand Taxation on Settlement Payments
It’s vital to comprehend the taxation implications when evaluating a settlement offer. Failing to do so can result in receiving less money than anticipated.
The tax status of different financial components in a settlement agreement varies based on the nature of the payment. Typically, termination payments of up to £30,000, including statutory redundancy payments, are exempt from taxation. However, other payments, such as those in lieu of notice, are taxable.
To gain deeper insights into how HMRC views taxation on termination payments, you can explore further details in an article discussing settlement agreement tax.
7. Beyond Finances: Non-Financial Considerations
While financial aspects hold paramount importance in settlement agreements, it’s prudent to consider additional factors.
One significant aspect is the provision of a favorable reference within the settlement agreement. Although no legal requirement mandates employers to supply references, obtaining a positive reference can be instrumental in future job searches. You can request a reference from your employer, which can be attached to the settlement agreement.
If your employment contract contains restrictive covenants that limit your ability to work for competitors or engage with your employer’s clientele, you may wish to negotiate a clause in the settlement agreement that releases you from these constraints. This would facilitate your pursuit of alternative employment.
Some employers offer outplacement support, which comprises guidance for securing another job, assistance with crafting a CV, and interview coaching to prepare you for the job market. You can explore the inclusion of this support within the settlement agreement.
Other potential benefits to consider may include:
- Retaining your mobile phone or transferring the number
- Maintaining access to your company car for a specific duration
- An announcement to notify former colleagues of your departure
8 – Seize an Early Free Consultation
Many law firms extend the courtesy of a complimentary initial consultation when a settlement agreement is presented to an employee. This opportunity is invaluable in seeking answers to pressing questions, such as:
- The appropriate compensation value in the settlement agreement
- Tax-efficient strategies for framing the agreement
- The potential for an employment tribunal claim against the employer and the estimated claim value
This consultation not only furnishes legal insights and financial considerations but also uncovers the potential for securing supplementary benefits.
9 – Crafting Your Counter-Offer
With adequate reflection and legal guidance, the time comes to articulate your counter-offer. This can be conveyed verbally or in writing.
If you choose to communicate your counter-offer in writing, email is generally the preferred medium. For detailed instructions on how to compose such a counter-offer, consult our guide, which incorporates a ready-made template.
However, there are merits to negotiating verbally as well. Verbal communication aids in preserving rapport and empathy during negotiations. Here are some tips for a verbal negotiation:
Employ Anchors Anchors are reference points that establish the framework for the ensuing discussion. Select a figure that is reasonable yet aligned with your best interests. Requesting too much may portray you as unrealistic, so ensure it represents your top offer.
Silence as a Strategic Tool Silence is a potent weapon in negotiation. Avoid over-explaining your demands and rely on silence to exude confidence. A confident negotiator often remains quiet and resolute.
Reasonable Considerations Pay heed to your employer’s response and identify any potential room for negotiation. Assess what you’re willing to compromise on to reach a mutually beneficial settlement.
Listen Actively Place yourself in your employer’s shoes and understand their perspective. Inquire about their priorities, motivations, and the reasons behind specific terms in the agreement. Open questions can be a valuable tool to uncover your employer’s core interests.
Reflect and Recap Summarize your employer’s statements to convey your understanding and your dedication to taking their input seriously. Active listening and thoughtful reflection can foster an environment conducive to negotiation.
10 – Pursuing Settlement Agreement Success
Several reasons render a settlement agreement a more attractive option compared to an employment tribunal claim:
- Cost-effectiveness, often with employers covering the expenses
- Expedited process, taking significantly less time than a tribunal claim
- Certainty of outcome, eliminating the uncertainty of tribunal proceedings
- Reduced stress levels, as legal processes tend to be distressing
While you should be vigilant against settling for less than your entitlement, endeavor to achieve a settlement agreement that is satisfactory to both parties when feasible.
11. Formalising the Next Steps
Upon reaching an initial agreement, it’s important to establish clarity on the subsequent actions. Typically, it falls on the employer to draft the settlement agreement, but sending a follow-up email to recap the agreed-upon terms can help prevent misunderstandings later.
When you receive the drafted settlement agreement, review it thoroughly, noting any queries you might have. Subsequently, seek advice from your solicitor to ensure your interests are adequately represented. This legal consultation is pivotal in finalizing the agreement on sound footing.