When employees are offered settlement agreements, it’s natural they have questions. One that frequently comes up is, “What is a reasonable settlement agreement?”. Below, we will answer this query, along with others that are commonly asked.

If you still have any questions after reading this comprehensive article, please don’t hesitate to get in touch. Settlement Agreement Lawyers are employment law experts with years of experience, allowing us to provide tailored specialist advice. Following a quick chat, we could advise on your possible next steps and help you navigate the legal process, should you be eligible.

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When do Employers Offer Settlement Agreements?

Settlement agreements can be offered in a number of circumstances. Among them, employers may be looking to resolve a dispute or avoid redundancy procedures. Some common scenarios include:

• A Business Restructure – If a company undergoes a restructuring, roles may change. To avoid legal action, the company may offer a deal to employees whose service is no longer required.
• Redundancy – During redundancy, employers must undertake specific procedures. These can be lengthy, and employers sometimes seek to avoid them through such agreements.
• A Workplace Dispute – For instance, an employer may offer a settlement agreement if there is a discrimination claim. This can prevent the dispute from escalating to an employment tribunal and allow for the termination of the employment relationship on mutually beneficial terms.

How Do You Know If You Have Been Offered a Reasonable Settlement Agreement?

As mentioned, it’s common for employees to ask, “What is a reasonable settlement agreement?”. Generally, such agreements are considered reasonable when they appropriately reflect the potential value of claims against an employer and the employee’s position. This value would be based on several factors, including:

• Unemployment Period – Settlement agreements typically include a clause ending an individual’s employment. When negotiating the terms, it’s essential to consider the likely duration of unemployment and the associated lost wages.
• Likelihood of Success – The stronger the probability of winning at the tribunal, the more valuable the settlement offer tends to be. For instance, if an employee’s claim is estimated to have an 80% chance of success, the offer may reflect 80% of the potential tribunal award.
• Contractual Entitlements – Employer offers should include all statutory and contractual entitlements, such as holiday pay, notice pay, and outstanding bonuses. Senior employees are more likely to have greater contractual entitlements, which should be factored into the agreement.

What Should a Reasonable Settlement Agreement Include?

The question, “What is a reasonable settlement agreement?” is entirely dependent on the facts of each case. However, while the figure offered can vary, the elements of such agreements are relatively consistent, as they appear regularly. Some examples include:

• Salary and Benefits: The continuation of salary and benefits until the termination date.
• Statutory Redundancy Payment: If applicable, a payment based on an employee’s service length, age and salary.
• Notice Pay: Either the requirement to work one’s notice period or a payment in lieu of notice.
• Restrictive Covenants: Any restrictions on future employment.
• Confidentiality Agreements: Provisions concerning what both parties can disclose about the agreement.

It’s important to note that specific payments within a settlement agreement won’t be taxable. While ‘regular income’ is taxable, elements like ex-gratia payments have a £30,000 tax exemption threshold, and others like pension scheme contributions are fully tax-free.

What Should You Do if You Are Unhappy About the Settlement Agreement Provided?

Employers aren’t always the most generous when they offer settlement agreements. They may begin with a low offer to see if the employee will accept. If the employee believes the offer is unreasonable, it’s ok to be unhappy about it, and in such circumstances, they could:

• Seek Independent Legal Advice: Employees must seek independent legal advice before a settlement agreement becomes legally binding. At such time, a solicitor can review the agreement to determine its reasonableness. If they believe it’s unreasonable, they could help the employee negotiate better terms.
• Negotiate the Terms: If an employee feels the compensation doesn’t fairly reflect their claim’s strength or the financial loss they’ll suffer, they could propose a counteroffer.
• Assess the Offer Based on Goodwill: Aside from the strength of the potential legal claim, an employee could appeal to their employer’s goodwill. By referencing their loyalty and contributions to the company, the employer may reconsider and offer something stronger.

Unfortunately, no matter how well an employee negotiates, sometimes their employer simply won’t budge. If this is the case, and the settlement is deemed unreasonable, the employee could refuse to sign the agreement. Following their refusal, they could then pursue compensation through the employment tribunal.

What is a Reasonable Full and Final Settlement Offer?

Before discussing what constitutes a reasonable full and final settlement offer, it’s important to understand how these differ from regular settlement agreements. A full and final settlement offer resolves not only existing claims but any potential future claims an employee may have against their employer. As a result, the employee effectively waives their right to pursue any further legal action, with limited exceptions. In contrast, regular settlement agreements typically only waive the right to pursue specific claims related to a particular dispute.

With this in mind, a reasonable full and final settlement offer is one that takes into account the specific circumstances of the employee. Since they relinquish significant legal rights, assessing whether the offer fairly compensates them for doing so is essential. Seeking independent legal advice early in the process is crucial to ensure that the offer reflects the employee’s situation and that their rights are fully protected.

Get Help From Settlement Agreement Lawyers

If your employer has made you an offer and you’re wondering, “What is a reasonable settlement agreement?” please contact Settlement Agreement Lawyers now. As experts in the employment law sector, we can answer your queries and provide specialist-tailored advice. We could help you negotiate optimal terms or navigate the legal process should you want to claim through a tribunal.

To find out more about the help we provide, please:

• Phone us on 0800 464 7254
• Fill in our online form to request a callback