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The Settlement Agreement Solicitor

Episode 12: How does a payment under a settlement agreement typically compare with an employment tribunal award?

Hello and welcome back to The Settlement Agreement Solicitor podcast, where we dive into the world of settlement agreements and employment law. I’m Geoffrey Caesar, your host, and today we’re tackling a question that many people ask: “How does a payment under a settlement agreement typically compare with an employment tribunal award?”

There are quite a few factors to consider when weighing up whether to accept a settlement agreement or take your claim to the Employment Tribunal, so let’s break it down.

What’s the Money Difference?

When we talk about a payment under a settlement agreement, it’s essentially a negotiated lump sum. The amount offered will depend on various factors such as the strength of your legal case, your salary, how long you’ve been employed, and how much your employer wants to avoid a tribunal. Often, settlement agreements offer between three to six months’ pay as compensation.

In contrast, if you win at an Employment Tribunal, the awards are split into different categories. You could receive:

A Basic Award, which is calculated similarly to statutory redundancy pay—based on your age, length of service, and weekly pay.
A Compensatory Award, which aims to cover actual financial losses like lost earnings, but is capped at either £115,115 or 52 weeks' pay, whichever is lower. In rare cases, this cap can be exceeded, for instance, in discrimination claims.

So, the first key comparison is this: the potential financial payout from a tribunal could exceed a settlement agreement in some cases, but that's far from guaranteed.

The Speed of Payment

Now, let’s talk about the time frame, because this is where the settlement agreement really shines. Typically, a settlement agreement will pay out within 14 to 28 days after both parties sign. This means you have cash in hand to move on with your life relatively quickly.

In contrast, pursuing a claim through the Employment Tribunal can take anywhere from 12 to 24 months just to get a hearing. And that’s assuming there are no delays. Think about that: you could be waiting one to two years for your day in court.

And remember, the tribunal process requires a significant commitment of time and energy, from preparing documents to attending hearings. It’s a lengthy, stressful experience with no guarantee of success at the end. So, while you mightreceive a larger payout at tribunal, that payment could be years away—if it ever comes.

The Risk of Losing

Now let’s talk risk. If you sign a settlement agreement, the payment is guaranteed. Full stop. Once signed, there’s no going back for either party.

But in an Employment Tribunal, you’re only paid if you win. And even if you win, you still face two further risks:

Solvency of the Employer: Imagine you’ve successfully won your claim, but your former employer goes bust before paying up. In that case, you may never see a penny.
Appeals and Reductions: Even if you win, the respondent might appeal the decision, which could result in a lower award or, in some cases, no award at all. A tribunal judgment is never completely final until the appeals process is exhausted, and that can add months—or even years—to the timeline.

So, while a tribunal might hold the potential for a higher award, there are significant risks that don’t come with a settlement agreement.

Certainty vs. Uncertainty

A settlement agreement provides certainty. You know exactly how much you’re getting and when. In contrast, the Employment Tribunal route is filled with uncertainty—there’s uncertainty around how much you could win, how long it will take, and whether you’ll actually receive the money if you win.

Many employees choose to take the certainty of a settlement agreement, even if it means accepting a lower sum, because it avoids the stress and unpredictability of a long tribunal process. And that’s not a decision to be taken lightly.

Final Thoughts

In summary, while a tribunal could offer the potential for a higher payout, settlement agreements are usually quicker, more certain, and far less risky. It’s all about weighing up your priorities: is it worth waiting years and going through a stressful tribunal process for the possibility of a bigger payment? Or would you rather have the certainty of a payment within a month, with no strings attached?

As always, if you’re facing this decision, it’s crucial to seek legal advice tailored to your specific circumstances.

That wraps up today’s episode. I hope this has given you a clearer understanding of the key differences between a settlement agreement payout and a tribunal award. If you found this episode helpful, don’t forget to subscribe and share it with anyone else who might benefit.

Thank you for listening, and until next time, I’m Geoffrey Caesar, and this is The Settlement Agreement Solicitor podcast.