Redundancy or Settlement Agreement?

What is redundancy?

Redundancy occurs when your job ceases to exist, or the need for your role is no longer there due to genuine business reasons. This isn’t about your performance in the role, it’s about the needs of the business. Common reasons for redundancy include:

• Business closure
• Workplace closure
• Reduced need for employees
• Restructuring

Your rights with redundancy

If you are made redundant, UK employment law provides you with specific rights. These include:

A fair process

Your employer must follow a fair redundancy procedure, which includes consulting with you either individually or collectively if many jobs are at risk; considering alternatives to your role; and providing adequate warning.

Statutory redundancy pay

If you have been continuously employed for two years or more, you are usually entitled to statutory redundancy pay, calculated based on your age, length of service and weekly pay, up to a capped amount.

Right to look for alternative employment

Your employer should offer you reasonable paid time off in order to look for a new job or to arrange training to boost your chances of alternative employment.

Right to challenge

If you believe your redundancy is unfair, not genuine, or the process was flawed you may have grounds to challenge the redundancy, potentially claiming unfair dismissal.

What is a settlement agreement?

Previously known as a compromise agreement, a settlement agreement is a legally binding contract between an employer and an employee. It is used to bring your employment to an end on mutually agreed terms. In return for certain benefits (typically a payment), you agree not to pursue any legal claims against your employer related to your employment or its termination.

A settlement agreement should be:

Voluntary

Both parties must agree to its terms

Negotiable

The terms of the settlement agreement, particularly the payment being offered, are usually open to negotiation.

Requires independent legal advice

For a settlement agreement to be legally binding you must receive independent legal advice on its terms from a qualified solicitor. Settlement agreements are usually drawn up by a company on its terms, but your employer should cover the cost of getting your own advice to ensure the terms are fair.

Confidential

Agreements often contain clauses that confidentiality is required over the terms and sometimes even the existence of the agreement itself.

Take a look at Kew Law’s explanation and advice about settlement agreements.

Choices: Redundancy or settlement agreement?

When it comes to deciding between redundancy or settlement agreement the decision isn’t always clear-cut.; particularly, as a settlement agreement can sometimes be offered during the redundancy process.

Redundancy as the primary route

If an employer has a genuine business need to reduce headcounts or change roles they will typically follow a redundancy process. They will be obliged to follow the legal procedures associated with redundancy and offer statutory redundancy pay as a minimum.

When a settlement agreement is offered instead

If a settlement agreement is offered instead of redundancy, or is offered during the redundancy process it is usually to assist with the following:

Enhanced terms

An employer might offer a settlement agreement to provide an enhanced redundancy package – a payment significantly more than statutory redundancy pay – in return for you waiving your rights to bring a claim. This can be an attractive option for both parties and offers a quick and more generous offer.

Avoiding disputes

If the employer believes there is a risk of you bringing a claim (for example, if the redundancy process was difficult or there’s a potential claim for discrimination), they may offer a settlement agreement to achieve a clean break and avoid costly litigation.

Mutual departure

A settlement agreement can be used in situations where employment is ending for reasons other than a conventional redundancy, such as a breakdown in the work relationship or for a performance issue. This way the employer can avoid a lengthy formal process.

What option is right for you: Redundancy or settlement agreement?

The decision over redundancy or settlement agreement is entirely dependent on your specific circumstances, the reason for ending the employment and the terms on offer. Broadly speaking

Consider negotiation or a settlement agreement if:

• You are being offered a payment significantly above your statutory redundancy pay.
• You want a swift, clean and confidential exit from your employment.
• You believe you might have a claim against your employer and wish to resolve it without going through a tribunal.
• You are offered an agreed reference that will help your job search.
• Your legal costs for advice are covered by your employer.

Consider challenging or refusing a settlement agreement if:

• You believe your redundancy isn’t genuine, or the process followed was unfair.
• The settlement offer seems too low in comparison to the potential value of any claims you might have.
• The terms are unreasonable or would severely impact your future career.

Consider accepting redundancy if:

• You’re confident the redundancy is genuine.
• Your employer is following the correct processes, including offering alternative roles if available.
• You want a clear and transparent process, as redundancy must follow a set legal framework.
• You want peace of mind that you can approach your former employer for a reference.
• You’re happy with the financial offer, or can negotiate it to a point you’re happy to accept.

How Kew Law can support you

Kew Law’s specialist employment law solicitors are here to provide you with clear, practical and empathetic advice to ensure you make the best decision for your future. Whether you’re facing a redundancy consultation or have been handed a settlement agreement, getting fast, independent legal advice is paramount. We would urge you never to sign anything without first seeking your own advice, regardless of whether it’s paperwork for redundancy or settlement agreement.

At Kew Law our goal is to cut through the legal speak and ensure you understand fully the terms being offered to you. Contact Kew Law today for a confidential consultation. We are ready to help you navigate your options and secure the best possible outcome.