What is a redundancy settlement agreement?

A redundancy settlement agreement refers to a set of terms that are mutually agreed between an employee being made redundant and their employer.

Redundancy and settlement agreements can go hand-in-hand when an employer wants to give a degree of extra choice to an employee who is being made redundant. They’re entirely optional, and the employee in question doesn’t need to accept an offer to form such an agreement.

If they refuse, they can opt to follow the legal procedure for redundancy. By turning down the agreement offer, the employee is also likely turning down the chance for a higher redundancy package.

Are redundancy and settlement agreements the same thing?

Settlement agreements are a concept that exists separately from redundancy. A settlement agreement is a legal contract made between employer and employee, and may involve a payment to the employee, a resolution to a grievance, or something else.

Settlement agreements, once agreed upon and signed, are binding and the employee cannot later change their mind and decide to pursue legal action.

Redundancy occurs in a business when an employee’s role and function within the business is rendered obsolete or unsustainable. This might happen due to restructuring within an organisation, the shutting down of a particular area of a business, or financial difficulties making it no longer possible to remunerate the employee.

A redundancy settlement agreement is therefore a merging of these concepts, allowing an employer to make an employee redundant without needing to follow a fair redundancy process. To compensate for this, a higher payment will typically be offered, which the employee could accept, deny, or negotiate.

When are redundancy settlement agreements needed?

Redundancy settlement agreements may be needed when an employer needs to shed employee numbers quickly and with as little paperwork as possible. It also protects the employer from tribunal claims for unfair dismissal—since the redundancy was established on agreed terms—and eliminates the uncertainty of similar future action.

For the employee, it can condense the (often already stressful) process of being made redundant, solidifying terms like termination date and final payment sooner and more clearly than might otherwise be the case. The chance to negotiate a higher payment can also be attractive for employees, and allows them to seek a new job sooner and on more certain terms.

In an ideal situation, everybody involved in the settlement agreement wins. The employee is given the chance to take a modicum of control back in the redundancy process, and the employer saves time whilst also giving themselves some legal protection and achieving their goal of cutting employee numbers (if applicable).

How do you negotiate a redundancy settlement agreement

Whether employer or employee, the best way to negotiate a redundancy settlement agreement is with patience and a cool head. It may be preferable to have professional help with negotiating a settlement, but if you opt to negotiate yourself, start by planning your ideal outcome.

As an employee, you may want to negotiate for a higher settlement pay package. Knowing how much higher you’d be willing to accept is key before raising issue with the amount offered, and it will allow you to gauge how near or far you are from your preferred amount.

Remember that neither party is compelled to accept an agreement, and either one can refuse terms that are too unfavourable to them or outright refuse an agreement altogether.

Employees in these situations may feel pressured to accept an agreement for a favourable payment or because they need to take an offer whilst it’s on the table, but bear in mind that the concept of a settlement often benefits the employer just as much—if not considerably more—than the individual.

It should be noted that in order for the settlement agreement to be valid, the employee is required to seek out independent legal advice to ensure they fully understand what they are signing.

What is a reasonable settlement agreement?

This depends on the employee’s salary, the existence of any commission or bonuses due to them, and the value of their role both to the employer and themselves.

If redundancy will leave an employee without any form of income whilst they seek alternative means of employment, the payment needs to be appropriately sized to support them in the interim.

Additionally, the validity of the redundancy situation should be made clear. If the redundancy amounts to unfair dismissal, then the pay-out should be higher. Independent solicitors can help employees determine this and establish their rights while they have the opportunity to do so.

If you’re facing redundancy and settlement agreements or something else that needs professional legal guidance, contact Wafer Phillips Solicitors today.