How to negotiate an out of court settlement to avoid an employment tribunal

You can ask your employer to make an agreement to avoid going to tribunal before you start a case and at any point before the hearing begins (or even once it has started). Equally, they can approach you with an offer to settle at any point.

Sometimes employers are only really willing to think about settling a case after one has been started. 

You can suggest a settlement by sending the other side a letter marked ‘without prejudice’ or using Acas or a mediation service. Anything said in a letter or a conversation that you have agreed is ‘without prejudice’ cannot be used to strengthen the other side’s case at the Tribunal.

If you don’t have a solicitor or representative to help you, it is usually best to use Acas or a mediation service to help with the negotiations. They may also help you with the wording of a written agreement if you are able to reach agreement with your employer. Acas’ conciliation is free. Sometimes employers will prefer to use a mediator - they will usually pay for this, but the mediator will not be ‘on their side’, they will just be trying to help both sides reach an agreement.

Neither an Acas conciliator or a mediator will offer either side advice about whether the offer is fair – but it would be sensible to get some if you can, even if you have to pay if you could at all afford it. See our guidance on how to get free or affordable employment advice.

Usually one side makes an offer, then the other side makes a counter offer, and so on until you reach a compromise both sides are OK with. So, don’t feel that you need to accept their first offer, or expect them to accept yours.

September 2024

Think about what you want – the amount of compensation that you would like, as well as anything else like a reference, an apology, or a commitment to change something.

Your first offer should be reasonable, and based on the value of the claim (see our guidance on valuing your claim for an employment tribunal). You may want to make some deduction as coming to an agreement will save you all the stress, work, and uncertainty of going to Tribunal. Bear in mind it will also save your employer the cost of having a solicitor to help them defend your claim (or continue to defend your claim if the case has already progressed quite far) – which could be substantial.  It will also save the employer any potential damage to their reputation from the case, as tribunal hearings are open to the public and judgments are published in the public register.

You don’t want your first offer or counter offer to be so high that your employer will not negotiate with you. But you also don’t want it to be the minimum you want to accept, as you will probably have to drop the amount further after they respond.

Most of the time employers will also be willing to compromise, aand will usually increase their first offer if you negotiate. That said, some employers may not be willing to improve their first offer (but you won’t know unless you try).

Bear in mind that if your employer has not followed the court orders or behaved unreasonably and you win at tribunal, you could also ask for money to pay for your time preparing the case (see If your employer did not do what they were supposed to). If your case has already progressed a long way, you may want to tell them how much you will be asking for (follow the formula described on If your employer did not do what they were supposed to) as a way of strengthening your offer now.

It is worth agreeing a settlement if you can for all the reasons described in reasons to settle an employment dispute. However, try not to be pushed into accepting an offer you are not happy with.

Get employment advice if you can.

There are some definite positives to agreeing a settlement (before or after you have begun a case at tribunal).

1. You avoid all the work, stress and anxiety of taking a claim to tribunal.
2. There is no uncertainty - if you settle you know exactly what compensation you are going to get and when.
3. Taking a case to tribunal takes a long time - depending on your case and where you are in the country it currently takes between 6 months and two years! That is a long time to wait for an outcome and/or to receive your compensation.
4. You won’t have to pay anything. It doesn’t cost anything to start a claim at tribunal, but you might have to pay things like the expenses of your witnesses, and your costs to attend the hearing. 
5. A settlement agreement can include things that a tribunal cannot order – for example, an agreement that your former employer will give you a reference. Or an apology for the way you were treated.
6. If you are claiming for lost earnings, your settlement agreement will be based on how long you might be out of work. By the time your case gets to an employment tribunal, they are likely to know how long you didn’t have a job. If you get a job quickly, you may get more money from a settlement than you would get from a tribunal.
7. If you receive welfare benefits because you are not working, the amount received is deducted from any tribunal award you receive for loss of earnings. But if a settlement was agreed, they may not.
8. Employment tribunal hearings are often public (with journalists allowed in) and the judgments are recorded in a register that is freely available online. Sometimes you might prefer things are dealt with more privately, and a settlement can do that.

However, if you went all the way to tribunal you may get awarded a higher amount. It is also possible that you would get a lower amount or nothing at all.

If you are able to reach agreement with your employer about a settlement, it will need to be recorded in writing.  If you have reached agreement using Acas this will be in what is known as a “COT3”, in all other cases it will be through a settlement agreement. 

You must get independent legal advice for a Settlement Agreement to be valid and enforceable (which means that if one side doesn’t stick to the agreement, the other could take court action against them).  For this reason, if you are making a settlement agreement, your employer would usually make a contribution of around £500+VAT to help you pay for a solicitor to review the agreement before you sign.

You do not have to have independent legal advice for a COT3 to be valid and enforceable.  A COT3 can be enforced using the Fast Track enforcement process. However, COT3 terms can be quite complicated and it is very important to read through them carefully and make sure you understand exactly what you are agreeing to before you sign. 

If there are terms you don’t understand you can ask your ACAS conciliator to explain them, or you can try to get legal advice about them.

Key things to look out for are:

• Does the agreement record exactly what you have agreed with your employer?
• Exactly what are you giving up?  Is it just your current claim? Many COT3s go wider than this and include all past and potential future claims against the employer, including personal injury claims.  If you think you might have other claims you might want to take to tribunal or court, you should try to take advice before signing.
• When and how will you be paid?  There should be a payment date and a method of payment (e.g. by BACS transfer) included.
• Will the employer make any deductions from the payment (for tax, employee’s national insurance, overpayments)?  If so, are these clear?
• Is there a requirement not to say negative things about the employer or to keep your complaint confidential?  There should be reasonable exceptions from any such clause so that you can discuss the agreement and your feelings about it with professional advisers (including doctors or counsellors) and your immediate family.  You need to know what you can tell a new employer for example.  The agreement should also specifically state that it does not stop you making a “protected disclosure” (whistleblowing) or reporting a crime or wrongdoing to the police or a regulator.

Next >> How to start a case in an employment tribunal

The information in this guide applies to England and Wales.

The law is complicated. We recommend you try to get advice from the sources we have suggested.

The cases we refer to are not always real but show a typical situation. We have included them to help you think about how to deal with your own situation. 

Acknowledgements

Advicenow is grateful to the Ministry of Justice for funding the creation of this guide under the Online Support and Advice Grant.

Advicenow would like to thank everyone who provided advice and feedback on this guide, particularly Chris Lake, Rebecca Thomas of 42BR Barristers, and editorial teams at Thomson Reuters who kindly peer reviewed it.

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