Thompsons has an experienced team of specialist settlement agreement solicitors who can offer you expert legal advice on your case. For more information, please complete our short online contact form.
What is redundancy?
Redundancy occurs when an employer no longer requires an employee's role to be performed due to business or operational reasons. It often arises when a company needs to reduce costs, restructure its operations or move locations.
Before selecting an employee for redundancy, the law requires employers to carry out a consultation and selection process.
To avoid redundancies, employers may explore other options, such as changing working hours, offering voluntary redundancy, or transferring employees into different roles.
What is a settlement agreement?
A settlement agreement, previously known as a compromise agreement, is a legally binding contract between an employer and employee that sets out the terms of an agreement to terminate the employment relationship.
Typically, a settlement agreement provides financial compensation to the employee in exchange for their agreement not to pursue legal action against the employer. It may also include other terms, such as a reference or confidentiality clause.
Settlement agreements are voluntary and entered into by mutual agreement between the employer and employee. They may also be used to resolve employment disputes, such as discrimination claims, but are also used in voluntary redundancy situations.
What is the difference between a settlement agreement and redundancy?
A settlement agreement and redundancy have different implications for both employers and employees.
Employers must follow specific legal processes to ensure redundancy is fair and reasonable, and employees may be entitled to redundancy payments, notice pay or other benefits as required by law.
Settlement agreements can allow employers to reduce their workforce without going through the full redundancy consultation process, while eliminating the risk of unfair dismissal claims. However, while there is no choice in compulsory redundancy situations, employees must voluntarily agree to a settlement agreement,
Settlement agreement vs redundancy: which is better?
Whether a settlement agreement or redundancy is better depends on the individual circumstances of the employee involved.
A settlement agreement is voluntary, so it is the employee’s decision whether to sign. Compulsory redundancy offers a consultation process, but in reality the employee has no say in the decisions made by their employer.
Settlement agreements can provide some certainty and control for the employee, as they can choose whether to accept, and can negotiate the terms of the agreement with the support of a lawyer. Compulsory redundancy is often a stressful, uncertain, and drawn-out process for employees.
The payment offered in a settlement agreement is often higher than the amount the employee would receive in a compulsory redundancy situation.
However, accepting a settlement agreement means that you will lose your job – so you must be able to live without employment, or feel able to secure another role elsewhere. Sometimes in compulsory redundancy situations employees can apply for other roles at the same company, which may be desirable to those who think securing other employment may be difficult.
In most situations, employees have no influence over whether the employer opts to make compulsory redundancies or offers a settlement agreement.
Do I need legal advice to sign a settlement agreement?
Yes. To be legally binding, a settlement agreement must be in writing, refer to the specific complaints or claims that it seeks to resolve, and be signed by the employee.
The employee must also receive independent legal advice on the terms of the agreement before signing it.
Our specialist team of settlement agreement solicitors are here to help.
At Thompsons, we only represent workers, never their employers. We’ve been fighting for workers’ rights for over a century – and we’ll fight for your rights too.
For free legal advice, make an enquiry today.