Six ways to enhance a settlement agreement

June 24, 2020
Making staff redundant is tough at the best of times. But as the economy suffers the repercussions of COVID-19, job losses are likely to be significant.

Making staff redundant is tough at the best of times. But as the economy suffers the repercussions of the coronavirus crisis, job losses are likely to be significant. Hard-hit businesses will only be able to offer statutory redundancy packages. However, in some cases, employers can offer enhanced deals through settlement agreements – particularly to senior executives. But with many organisations unable to finance large exit payments, here are six ways to still enhance the deals for a swift, amicable exit.

The basics

Settlement agreements include a cash payment (use a settlement agreement calculator to get an idea of what an employee will be expecting) as well as a checklist of other basics, from an agreed reference to a contribution towards legal costs. Adding these in from the get-go means an employee (or their employment solicitor) doesn’t have to request them, which can get the process off to a positive start.

It’s worth thinking about any extras that won’t cost any more money. For example, if an employee has mortgage or income protection insurance, signing a settlement agreement (rather than being made redundant, say) may impact on that. Offer to insert a clause saying the company will cooperate with the insurer’s requests for information on the reasons their employment ended.

Extend their termination date

The government’s coronavirus job retention scheme (CJRS) has been extended until the end of October, although employers are expected to have to contribute towards costs after July. If you’re willing to keep an employee furloughed, it gives them an income for longer – of at least 80pc of their salary, capped at £2,500. The employee can still sign the settlement agreement and take the lump sum, but they will have some extra money for a few months – at not much cost to the employer.

Notice period and time off to look for work

An employee who has been employed for two years or longer has a right to take reasonable time off to look for other jobs, if they are faced with redundancy. So why not point it out to employees? You can make them feel supported by ensuring their line manager makes it easy for them to attend interviews.

It’s also worth noting that an employee could potentially get a new job faster if they didn’t have to work their notice.  This could be written into the agreement. If the business is at a point that it actually doesn’t require the employee to work their notice (despite their contract asking them to) then it’s even easier to offer to let them see out the time until their termination date as garden leave, or allow them to be paid in lieu of their notice.

See if they can retain some employee benefits

Check the employee’s contract to see what the notice provision provides for in terms of any benefits they may receive, such as healthcare insurance. And if it’s possible to allow an employee to retain their benefits for longer – at little or no extra cost to the company – see if you can either do that or offer to pay them in lieu of the benefits if they automatically end when their employment does.

Financial benefits

Senior executives may have joined save as you earn schemes or have share options in the company. Get the details of how ending their employment will impact on these arrangements. If you can delay the employee’s termination date, could the outcome of those benefits improve? For example, does the employee have to stay employed for a certain amount of time before they qualify to cash in their shares? Would extending their termination date allow them to pay less tax?

When it comes to bonuses, the same applies. See how the termination date affects the eligibility for the bonus. Even if an employee is not strictly eligible for the bonus, an employer may exercise discretion to award the bonus, as part of a generous exit deal, whether the employee is entitled to it or not.


Outplacement services are designed to help employees retrain or find a new role. These typically include:

  • Career counselling and coaching
  • Help with writing a CV
  • Interview techniques.

It’s an extra cost but larger organisations can usually access these services for individuals or group redundancies/restructures at lower costs than they can be bought by the employee themselves. So, including outplacement services can be seen as a gesture of goodwill in a settlement agreement.

About the author

Joanne O’Connell is a journalist for national newspapers, such as the Guardian. She is also editor of Employment Solicitor Magazine, an engaging resource for HR and employers, with expert analysis from employment solicitors about the UK’s rapidly evolving labour market.

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