When facing an employment dispute or the end of a job, deciding between accepting a settlement agreement or pursuing a claim in an employment tribunal is a significant choice. Both options have potential benefits, but the outcomes—especially financially—can vary widely. Here’s a breakdown of how a payment under a settlement agreement typically compares to an award from an employment tribunal, along with the pros and cons of each option to help you make an informed decision.

1. Financial Comparison: Settlement Agreement vs. Tribunal Award

Settlement Agreement Payment

• Quick and Predictable Payment: With a settlement agreement, you know exactly how much you’ll receive and when. Once you and your employer sign, the payment is often made within 14 to 28 days.
• Guaranteed Outcome: Since the amount and terms are agreed upon by both parties, there’s no risk of walking away empty-handed.
• Negotiable Amount: A settlement agreement allows you and your employer to negotiate the amount based on the specifics of your case. Typically, settlement amounts range from 1-6 months’ salary, but this can vary widely depending on factors like length of service, strength of potential claims, and the employer’s willingness to avoid tribunal.

Employment Tribunal Award

• Potentially Higher but Uncertain Compensation: Tribunal awards can be substantial, especially for claims of discrimination, harassment, or unfair dismissal. However, they’re not guaranteed and vary based on the case’s merits, the tribunal’s assessment, and the specific claims made.
• Basic and Compensatory Awards: Employment tribunals can issue a basic award for unfair dismissal, which is calculated similarly to statutory redundancy pay, and a compensatory award, which is meant to cover actual losses like lost earnings, capped at £115,115 or 52 weeks’ pay, whichever is lower. Discrimination claims, however, are uncapped and may yield higher awards depending on the circumstances.
• Risk of No Award: Tribunal decisions are unpredictable. If the tribunal doesn’t rule in your favor, you may receive little to nothing—and if the employer appeals, this could delay any payment further.

2. Speed of Payment

Settlement Agreement:

• Settlement agreements are designed to resolve matters quickly, with payment typically occurring within a few weeks after signing. This speed provides immediate financial security and allows you to move forward.

Employment Tribunal:

• The tribunal process can take months, or even up to 1-2 years, to reach a conclusion. Adding in potential appeals, the process can be further delayed, meaning any financial compensation could be a long way off.

For those needing immediate financial support or wanting a faster resolution, a settlement agreement’s guaranteed and timely payment can be a major advantage.

3. Certainty and Control

Settlement Agreement:

• With a settlement agreement, you have certainty over the outcome. Both the amount and the terms are clearly outlined in the contract. This guarantees you know exactly what you’ll receive, allowing you to avoid the risks associated with an unpredictable tribunal process.
• You also retain some control over the negotiation process, which allows you to pursue non-financial benefits (such as an agreed reference, confidentiality clauses, or outplacement support) that aren’t available through a tribunal.

Employment Tribunal:

• Employment tribunals are inherently unpredictable, and outcomes depend on the tribunal’s interpretation of the evidence, witnesses, and legal arguments. While there’s potential for a larger award, there’s no guarantee of success, and you could end up with less than expected or nothing at all.
• Once you go to a tribunal, the outcome is fully in the tribunal’s hands. The tribunal process does not allow for non-financial remedies such as agreed references or confidentiality terms that can protect your reputation.

For individuals who prioritize certainty and control over potential maximum financial gain, settlement agreements provide a clear advantage.

4. Cost and Stress

Settlement Agreement:

• Settlement agreements are generally quicker and less stressful. While it’s essential to have legal advice (which employers typically contribute to), there are no additional costs for lengthy legal battles or hearings.
• You avoid the emotional and mental strain of preparing for a tribunal, cross-examining witnesses, and dealing with potentially adversarial interactions with your former employer.

Employment Tribunal:

• Tribunals are more stressful and time-consuming. You’ll need to gather evidence, prepare your case, and potentially attend multiple hearings.
• Legal fees can add up quickly if you hire a solicitor to represent you through the entire tribunal process, and there’s no guarantee that these costs will be recovered, even if you win. In the UK, each party usually bears their own legal costs in tribunal cases, so it’s unlikely your employer will be required to pay your legal fees.

For those who wish to avoid a lengthy legal process, a settlement agreement offers a more streamlined, low-stress route.

5. Non-Financial Benefits

Settlement Agreement:

• Settlement agreements allow you to negotiate non-financial benefits, which can be as valuable as the financial components. These may include:
  • Agreed Reference: An agreed reference can be crucial for finding new employment, especially if the departure was challenging.
  • Confidentiality Clause: Protects your reputation by preventing your employer from discussing the terms or circumstances of your departure.
  • Non-Disparagement Agreement: Ensures neither party speaks negatively about the other, which can safeguard your professional reputation.

Employment Tribunal:

• Tribunals don’t offer non-financial remedies. The tribunal’s decision will be focused solely on the legal claims, such as awarding financial compensation for unfair dismissal or discrimination. They don’t negotiate references, confidentiality, or other career-supportive terms that a settlement agreement might include.

If non-financial benefits are important to you, a settlement agreement offers more flexibility and scope to include these.

6. Risk of Enforcement Issues

Settlement Agreement:

• Once a settlement agreement is signed, both parties are legally bound by the terms, providing you with security and assurance that the payment will be made as agreed. If an employer breaches the terms, you have clear legal grounds to enforce the agreement.

Employment Tribunal:

• While tribunals can order an employer to pay a certain amount, enforcing that award can sometimes be a challenge, especially if the employer has financial difficulties. Additionally, if your employer appeals, this can further delay the payment and increase the risk of non-payment if the appeal outcome changes.

When is a Settlement Agreement the Better Option?

A settlement agreement might be the right choice for you if:

• You value certainty and would prefer to avoid the risks and unpredictability of a tribunal.
• Immediate financial support is essential, and you don’t want to wait months or years for a tribunal award.
• Non-financial terms such as a reference, confidentiality, or other benefits are important to you.
• The stress of a tribunal would have a significant negative impact on you, and you prefer a straightforward, less adversarial solution.

When Might You Choose a Tribunal?

Taking your claim to a tribunal might be worth considering if:

• Your claim is strong and high-value, particularly in cases of discrimination, harassment, or other unlawful treatment with potential for a substantial award.
• You believe the settlement offer is insufficient, and you’re willing to risk a tribunal for a potentially higher award.
• Principle and justice are driving factors, and you wish to have a public acknowledgment of wrongdoing.

Final Thoughts: Weighing Your Options

Choosing between a settlement agreement and a tribunal is a personal decision that requires weighing the pros and cons. Settlement agreements offer immediate financial certainty, low stress, and the flexibility to include non-financial benefits, making them an attractive option for those who prioritize a quick and predictable resolution. Employment tribunals, on the other hand, may offer a larger financial award for certain claims but come with increased uncertainty, time, and stress.

Before making a decision, it’s essential to consult with a legal adviser to assess the strength of your case, the adequacy of the settlement offer, and your priorities. An experienced solicitor can help you evaluate both options and negotiate for a settlement that balances fair compensation with your need for a swift and secure outcome.