Can an employer withdraw a settlement agreement offer?
If your employer has offered you a settlement agreement, you may be concerned about whether they can withdraw the offer before you have decided to accept it.
This is particularly important if you are negotiating compensation, considering leaving your employment or relying on the proposed payment when planning your next steps.
In most circumstances, an employer can withdraw a settlement agreement offer before a legally binding agreement has been reached.
Settlement agreements are voluntary arrangements. Neither an employer nor an employee is generally required to accept a proposed settlement, and both parties can negotiate the terms before reaching an agreement.
However, whether an offer can be withdrawn will depend on the circumstances, including the wording of the offer, any conditions attached to it and whether a binding agreement has already been formed.
It is also important to distinguish between a proposed settlement agreement and an agreement that has been legally concluded. Once a valid settlement agreement is binding, an employer cannot ordinarily withdraw from its obligations simply because it has changed its mind.
Understanding the stage your negotiations have reached is therefore essential when determining your legal position.
Can my employer withdraw a settlement agreement during negotiations?
Yes. An employer can generally withdraw a settlement agreement offer while negotiations are ongoing, provided the offer has not already resulted in a binding agreement.
Settlement negotiations often involve discussions about compensation, notice pay, outstanding holiday entitlement, the proposed termination date and any employment reference.
Employees may also request changes to confidentiality provisions, restrictive covenants or other contractual terms before agreeing to leave.
During these discussions, either party may propose different terms. However, making a counteroffer can have legal consequences.
For example, if your employer offers £10,000 in compensation and you respond by requesting £15,000, your employer may accept your proposal, make a different offer or decide not to proceed with the settlement.
Under ordinary contract law principles, a counteroffer can amount to rejection of the original offer. This means you should not assume that the initial £10,000 offer will remain available if your employer rejects your request for more money.
The position may differ where the employee has simply asked whether the employer would consider improving its offer, without rejecting the original terms.
It is therefore important to consider how any response is worded, particularly where the existing offer is financially significant or subject to a deadline.
Can my employer withdraw a settlement agreement offer before I sign it?
In many cases, an employer can withdraw an offer before the settlement agreement has been signed and completed.
Settlement agreements are commonly issued on a subject to contract basis. This generally means the parties do not intend to be legally bound until the agreement has been formally completed in accordance with its terms.
However, the absence of a signature does not automatically mean that no binding obligations can exist.
Depending on the communications between the parties, the wording used and the terms agreed, there may be a question about whether a separate binding contract has already been formed.
This is distinct from whether an agreement satisfies the statutory requirements needed to waive particular employment claims.
Under section 203 of the Employment Rights Act 1996, a settlement agreement intended to waive specified statutory employment claims must meet certain conditions. These include being in writing, identifying the particular claims being settled and ensuring that the employee has received advice from a relevant independent adviser.
The agreement must also identify the adviser and confirm that the applicable statutory conditions have been satisfied.
Where an employer withdraws an offer after the employee has indicated acceptance, the legal position should therefore be reviewed carefully rather than assuming that the agreement is either automatically binding or automatically unenforceable.
How long should an employer give you to consider a settlement agreement?
An employer should allow a reasonable period for an employee to consider the proposed settlement agreement and obtain independent advice.
The Acas Code of Practice on Settlement Agreements recommends allowing at least 10 calendar days to consider the formal written terms and receive independent advice, unless the parties agree otherwise.
This is guidance rather than an automatic legal right to keep an offer open for 10 days.
An employer may specify an acceptance deadline, and the existence of the Acas recommendation does not necessarily prevent an offer from being withdrawn before that deadline.
However, placing unreasonable pressure on an employee to accept an agreement may amount to improper behaviour.
For example, an employer who threatens dismissal if an employee does not immediately accept a settlement agreement may create legal difficulties, depending on the circumstances.
Improper behaviour can also affect whether settlement discussions are protected from being used as evidence in subsequent Employment Tribunal proceedings.
If you are given a particularly short deadline or your employer threatens to withdraw the offer unless you sign immediately, obtaining advice can help establish whether the approach raises legal concerns.
Are settlement agreement negotiations confidential?
Settlement agreement negotiations are often described as confidential, but the legal protections surrounding those discussions are not absolute.
Negotiations may be protected by the without prejudice principle where there is an existing dispute between the employer and employee and the communications are a genuine attempt to settle that dispute.
Where the principle applies, the negotiations generally cannot be used as evidence in subsequent legal proceedings concerning the dispute, subject to recognised exceptions.
A separate protection exists under section 111A of the Employment Rights Act 1996.
This provision can protect certain pre-termination settlement discussions from being used as evidence in ordinary unfair dismissal proceedings, even where there was no existing employment dispute.
However, section 111A does not generally protect discussions in claims involving discrimination, automatically unfair dismissal or breach of contract.
The protection may also be limited where there has been improper behaviour during the negotiations.
For example, if an employee alleges that discriminatory comments were made during settlement discussions, the employer cannot necessarily prevent those comments from being considered simply by describing the conversation as protected.
Similarly, marking correspondence as without prejudice does not automatically make it legally privileged or inadmissible.
The circumstances in which the discussions took place will determine whether the relevant protection applies.
What happens if my employer withdraws a settlement agreement offer?
If your employer withdraws a settlement agreement offer before a binding agreement has been reached, your employment will generally continue under your existing contractual terms, unless it has already ended or a separate termination arrangement applies.
The employer may decide to continue with the workplace process that originally led to the settlement discussions.
For example, if the offer arose during a redundancy consultation, the employer may continue the redundancy process. If it arose during a disciplinary or capability matter, the employer may proceed with the relevant procedure.
However, withdrawing a settlement offer does not remove the employer’s existing legal obligations.
Any subsequent dismissal must still be considered under the applicable employment law rules. Depending on the circumstances, this may include requirements relating to fair dismissal procedures, discrimination, notice and contractual entitlements.
The withdrawal of a settlement agreement offer is not automatically unlawful.
Nevertheless, legal concerns may arise if the withdrawal forms part of discriminatory treatment, unlawful victimisation or another breach of employment rights.
If your employment has already ended, the withdrawal of a proposed settlement payment does not remove any statutory or contractual payments you are otherwise entitled to receive.
For example, your employer cannot avoid paying outstanding wages or accrued holiday pay simply because settlement negotiations have broken down.
What if my employer withdraws an offer after I have accepted it?
The position becomes more complicated where an employee has already accepted the proposed settlement terms.
The key question is whether the parties have reached a legally binding agreement and, if so, what obligations arise under it.
An employee’s acceptance of a proposed financial package does not necessarily mean that a valid statutory settlement agreement has been completed.
The agreement may still be subject to outstanding conditions, including independent legal advice, approval of the final wording or formal execution by the parties.
However, where a binding agreement has been validly concluded, an employer cannot ordinarily avoid its obligations by withdrawing the offer.
If the employer refuses to make an agreed payment, this may amount to a breach of contract.
The appropriate remedy will depend on the terms of the agreement, the nature of the breach and the circumstances in which the agreement was formed.
Where an employer attempts to withdraw an offer after acceptance, it is important to preserve the relevant correspondence and obtain advice on whether any enforceable agreement exists.
Should you seek legal advice before negotiating a settlement agreement?
If you have received a settlement agreement offer, obtaining independent legal advice can help you understand the proposed terms and the consequences of accepting or rejecting them.
A settlement agreement may involve more than a compensation payment. It can also affect your right to bring employment claims, your notice entitlement, confidentiality obligations, restrictive covenants and the reference your employer agrees to provide.
Before making a counteroffer, it is important to consider whether the existing proposal is acceptable and whether your employer has indicated that it will remain available during negotiations.
An employer may be prepared to increase the compensation offered, but there is no automatic entitlement to an improved package.
There is also a risk that negotiations will end without an agreement.
Independent advice is particularly important because a settlement agreement intended to waive specified statutory employment claims must satisfy the relevant legal requirements.
Employers commonly offer a contribution towards the employee’s legal advice costs, although they are not generally required by law to do so.
If an offer has already been withdrawn, legal advice can help establish whether the withdrawal was effective, whether a binding agreement had been reached and whether you have any separate employment claims.
Can Pre-Law help if your employer withdraws a settlement agreement offer?
If your employer has offered or withdrawn a settlement agreement, it is important to understand your legal position before deciding how to respond.
Whether an employer can withdraw an offer will depend on the stage negotiations have reached, the terms proposed and whether any binding agreement has been formed.
At Pre-Law, we provide employment law advice to employees considering settlement agreements and negotiating the terms of their departure.
We can review your proposed agreement, explain your employment rights, assess the compensation and contractual terms offered, and advise on potential negotiations.
If your employer has withdrawn an offer, we can also review the circumstances and advise on your available options.
Contact Pre-Law to discuss your settlement agreement before accepting, rejecting or making a counter offer.
