Last month I advised a client to settle his case for an undisclosed sum. I believe he made the right decision. We went on to sign the COT3 agreement and the sum was paid to my client.

Unfortunately, my client started to get cold feet. He was in two minds about whether he’d made the right decision to settle rather than proceeding to a Tribunal hearing. To be honest, I can understand why. Advising clients through settlement negotiations is difficult, as it relies on gut instinct i.e. mine.

What I do advise clients is this.

The starting point for negotiations is usually the Schedule of Loss, which is a document that sets out financial losses and compensation for discrimination. For unfair dismissal claims, it is usually made up of a ‘basic award’, calculated according to age and length of service at the date of dismissal, capped at a statutory maximum of currently £400 per week, and a ‘compensatory award’ made up of ‘loss of statutory rights’ and ‘loss of earnings’. ‘Loss of statutory rights’ is an amount to compensate for loss of certain statutory rights accrued with the employer, e.g. the right not to be unfairly dismissed; this is normally paid at £250. An award for ‘loss of earnings’ can be made to compensate actual net loss of earnings from the date of dismissal to the date of the Tribunal hearing.

Compensation can be awarded for injury to feelings for the discrimination suffered. How this is calculated is based on a case called Vento, which established guidelines in how to put a value on discrimination claims. There are three bands: up to £8,000, from £8,000 to £18,000, and from £18,000 to £28,000. The band each individual case is placed in depends very much on the experience of the solicitor involved in the case, and will depend on the severity of the act of discrimination and how often it occurred i.e. a one-off act is likely to attract less compensation than a series of acts over a long period of time.

Once the total value of the Schedule of Loss is calculated, this is usually the maximum figure that can be used as a starting point for settlement negotiations. Claimants are expected to mitigate their losses as far as possible i.e. get another job within a reasonable time frame as opposed to resting on their laurels in anticipation of compensation, and any welfare benefits (taxable ones such as Jobseekers Allowance or Employment & Support Allowance) claimed or earnings from a new job will have to be deducted from the total.

However, while a Schedule of Loss can be useful when it comes to settlement negotiations, it’s not the be all and end all. The respondent will have their own view on what compensation claimants are likely to get if they succeed with their claim at Tribunal, and this is more likely than not going to be a lower figure than claimed. In particular, they will have their own ideas as to what claimants could potentially get for injury to feelings if the claim is successful.

There is also the issue of merit. Does the claim have a reasonable prospect of success? If so, what is the Tribunal likely to award the claimant? If the claim has little merit, then the claimant can expect to receive no compensation or very little compensation. There is a particular risk if a lower figure is awarded during settlement negotiations than is awarded by the Tribunal; a Tribunal award could be reduced on this basis or a costs application granted because a claimant forced the respondent to go all the way to the Tribunal hearing when it would have clearly been more sensible to settle in the first place.

On top of that, we have what is known as “litigation risk”. This means basically what each party is prepared to compromise with in order to eliminate the risks associated with going ahead to Tribunal i.e. if the claimant wins, will the compensation awarded be more or less than the figures used in settlement negotiations/the Schedule of Loss? If the claimant loses, how much are they likely to have to pay in legal fees if the respondent makes a costs application? It is usually because of this risk that both parties have to compromise how much they want to settle for.

So, settlement negotiations are not easy to explain to clients. Ultimately, there has to be a degree of trust in the solicitor to be able to settle cases successfully. This proves the point that it is important for solicitors to build up confidence and trust in their clients, and any breakdown in the solicitor-client relationship can lead to difficulties when trying to settle cases.