As I discussed in today’s email, when deciding what to offer an employee to settle a claim – or whether to settle at all – you need to think about more than monetary compensation. It’s also important to consider the indirect cost to the business if a settlement is not reached. This cost is very real and you should always factor it into any negotiation. By understanding the full cost exposure on all fronts, you will know when to step up to and when to step away from the negotiating table.

These are three indirect costs to consider:

One obvious upfront consideration is what it will cost the business to defend any claim. If you have insurance cover, read the small print so you’re clear which legal costs it is and is not likely to cover. If insurance cover is not in place, then you will bear the cost of defending any tribunal proceedings. This is likely to be tens of thousands of pounds of money lost in legal fees – even if you ultimately win the case. You might bring some or all of this pot to the table as part of a settlement package.

Preparing the business's defence to legal proceedings will take up management time, as will preparing witness statements and managing documentary disclosure. If the case goes to hearing, witnesses will need to take time out of the business to give evidence. All this will be a distraction to the business.

It is also important to consider who your likely witnesses will be and what impact giving evidence might have on their welfare. If you’re concerned this might lead to stress or absence, this may tip the balance towards settlement. Also, bear in mind that if a key witness leaves the business, you may not be able to put your best foot forward should the case reach a tribunal.