Employment Knowhow: Negotiating termination payments

The employment relationship may end for a variety of reasons. Some terminations are highly contentious and the process may entail a period of intense negotiation.

Negotiations: a matter of perspective  

An employer and employee are understandably going to have different priorities.

Frequently an employer will want to:

  • control the speed with which the employee leaves the business;
  • limit the cost of the exercise and keep termination payments to a minimum;
  • manage internal and external communications concerning the employee’s departure;
  • minimise the risk of post-employment competition (by ensuring restrictive covenants aren’t undermined);
  • avoid disruption to the business and negative publicity;
  • maintain a degree of consistency: an employer will always be concerned about setting a precedent. 

An employee facing termination of their employment is likely to have different priorities. Typically an employee will want to:

  • maximise the value of the termination payment (including, for example, securing notice pay and benefits; bonus payments; pension contributions; LTIPS, shares and share options; private medical insurance and PHI and, usually, a tax efficient ex gratia payment);
  • agree a positive reference, as well as internal and external announcements;
  • retain certain property: ranging from a company car to a phone or a laptop;
  • agree a release from (or relaxation of) restrictive covenants;
  • secure outplacement support and a contribution to any legal fees related to negotiating and agreeing the terms of the departure.    

Adopting a constructive approach

There will be occasions when there is no scope for negotiation. Strategically, it may be desirable to put forward a time-limited, non-negotiable offer. In the majority of case, however, the approach is less binary.

Where a negotiated settlement is desirable, despite conflicting priorities, employers and employees should (initially at least) adopt similar techniques in conducting negotiations. In particular, both parties should wherever possible:    

  • At the outset, establish a clear sense of what is important.
  • Consider how the negotiation will unfold. It is often helpful to devise an initial position, with a view to making certain concessions if necessary.   
  • Layer offers and counter-offers. It is generally helpful to negotiate by way of lists of requirements. This will (by process of deduction) enable you to identify the other side’s priorities and it ensures the negotiation can work flexibly.  
  • Avoid getting hung up on points of principle. It is helpful at all times to focus on outcomes.
  • Consider what may be important to other side in the negotiation. Think creatively about offers, counter-offers and concessions. At first, it may not be entirely obvious what factors are important to the other side. Keep in mind that the other side may have a range of motives/pressures.
  • Connected to point 5, always spend time listening. In a negotiation it is tempting to assert your position and dominate the discussion. This is almost always counter-productive. If you ask questions and let the other side talk, invariably you will gain a better understanding of their position.
  • Connected to point 6, in the context of a free flowing negotiation, don’t ‘fill the silence’. Silence can be a powerful tactic. If you resist the compulsion to fill every void with a response or contribution, you will be able to actually hear the other person and, more importantly, maximise the possibility of gaining a concession.  
  • Adopt a reasonable and balanced tone. Not only is this more likely to foster co-operation, it is always possible to become more robust as time progresses. However, once negotiations become combative, it is difficult (and sometime impossible) to revert to a more co-operative tone.

Understand the status of discussion(s)   

It is helpful to understand the different types of discussions that can take place in the context of a negotiation. (Please note the term “discussion” below should be interpreted as applying to both conversations and correspondence). 

  • Open discussions: these are discussions between the parties which attract no special status or protection and would be admissible as evidence in Tribunal or Court proceedings.
  • Without prejudice discussions: these are discussions which are held in a genuine attempt to settle an existing dispute between the parties. These communications are not admissible as evidence and generally cannot be referred to by either party in Tribunal or Court proceedings.   
  • Pre-termination discussions (also known as “protected conversations”): these are discussions held with a view to terminating an employee’s employment on terms agreed between the employer and the employee. A discussion of this type can take place where there is not an existing dispute between the parties and will not be admissible as evidence in any proceedings for unfair dismissal unless there has been “improper behaviour”. Please note that this type of confidential discussion has a very limited application. Further information can be found on the ACAS Code of Practice on Settlement Agreements

The outcome of a successful negotiation will usually be a settlement agreement (see Settlement Agreements).   

This page was updated on the 1st August 2018.

This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.

All content on this page is correct as of October 24, 2018.