What is the difference between a settlement agreement and redundancy?
Redundancy usually means there isn’t a job for you anymore, whether this is as a result of a workplace closure, or the employer is reducing the number of staff. It may be that your job no longer exists, or maybe the workplace is being relocated to an area you don’t want to move to. In a redundancy situation there are certain protocols that need to be observed.
A fair redundancy procedure will include things like:
- Identifying who is at risk of being made redundant.
- Making sure the selection criteria is fair.
- There will be a consultation process.
- There is a reason for the redundancies.
- All alternatives are explored.
- Considering whether staff can be re-deployed in another role.
- Giving the employees the chance to appeal against their redundancy.
A settlement agreement is a document which swerves all the protocols required in a redundancy situation and gets straight to the heart of the matter. The employee gets a pay out but in return gives up all their rights to a fair redundancy procedure.
The pros of a settlement agreement
- Basically the employer doesn’t have to waste time and go through all the legal requirements of redundancy.
- An employer may offer the employee more money as an incentive for them to bypass the fair redundancy procedure, so it’s win-win for both employer and employee.
- More certainty can result from a settlement agreement, as you’ll know how much money you’re getting and when.
The cons of a settlement agreement
- You waive any right to go through a fair redundancy procedure if you opt for a settlement agreement.
- Accepting the settlement agreement would mean you won’t be able to claim compensation in an employment tribunal.
- The settlement agreement usually stipulates that you keep quiet about any grievances you might have had. For example, if you’ve been unfairly treated.
- You can’t be absolutely certain whether the money you receive will be more than the redundancy pot you might be entitled to.
Redundancy v Settlement agreement
There are two types of redundancy payment which you can receive.
1. Statutory Redundancy Payment
A statutory redundancy payment is the minimum sum of money that your employer is required by law to pay you if you are made redundant.
The amount of the statutory redundancy payment depends on three factors.
- Your salary
- Your age
- How long you’ve been employed
You’ll normally be entitled to statutory redundancy pay if you’re an employee and you’ve been working for your current employer for two years or more. You’ll get: one week’s pay for each full year you were 22 or older, but under 41 and one and half week’s pay for each full year you were 41 or older.
2. Enhanced Redundancy Payment
In addition to the statutory redundancy payment, you may also receive an enhanced redundancy payment from your employer.
This is a redundancy payment that offers you more than just the legal minimum amount, whether it’s because the contract is more generous or maybe because they are offering more in return for voluntary redundancy in order to avoid the compulsory redundancy dismissal process.
Whether you’re entitled to this or not is dependent upon your employment contract, so if you’re wondering whether to opt for a settlement agreement, or waiting for redundancy then it’s worth finding out whether you’re entitled to an enhanced redundancy payment.
There’s also something called contractual payments to consider. This is where your contract stipulates that your employer will pay you a certain amount of money even if you’re made redundant. These payments include:
Full salary and benefits up to the termination date of employment.
Notice pay (the amount of notice you’re entitled to should be stated in your employment contract)
Payment for any holiday that remains but hasn’t been taken.
There are various benefits when it comes to a pay out through a settlement agreement. One of these is that you will usually be paid more money. This is arguably a given since why would you opt for a settlement agreement rather than redundancy? Especially if you might want the chance of redress through a tribunal if you felt you had been unfairly dismissed.
Other factors which might influence the amount you receive in a settlement agreement include:
- The possibility of pursuing a claim for unfair dismissal at an employment tribunal.
An employer may want to avoid a long and costly process by offering a generous settlement agreement.
- How staff were compensated in the past
If there has been some kind of precedent set then you can use this as a negotiating benchmark.
- Your employer’s generosity
It may be that your employer wants to give you a generous pay off.
- A good reference
If you’re made redundant a good reference doesn’t necessarily follow whereas within a settlement agreement this is something that can also be added to the package.
What does it mean if you take one and not the other?
If you take a settlement agreement you can not pursue any other claims, for example an unfair dismissal claim at a tribunal. If you take redundancy then you can pursue other claims as well as talk to other parties about your grievances.
Do you lose all leverage against your employer?
A settlement agreement can actually give you more leverage, especially if the employer is keen to move on. For example, you can negotiate a higher amount of money than you’d receive if you went for redundancy but you can also negotiate things like excellent references.
Is either of them agreed in court?
A settlement agreement needs to be recognised in law and this can only be done if a solicitor or certified trade union representative gives it the go ahead. This is because there might be certain issues you may not be aware of such as discrimination, under which you are protected by the Equality Act and consequently this would have to be included in all negotiations.
Once the agreement has been made between two parties, the draft can be submitted to the court for approval.
What should you be getting compensated for?
What you are being compensated for under a settlement agreement and redundancy are two different things.
Redundancy is something which is written in law. Basically if you’ve worked for your employer for two years or more then you are entitled to a statutory redundancy payment to compensate for the fact that your job no longer exists and you may need time to find another position.
A settlement payment is given so that both you and your employer can move on quickly. You are paid a certain amount to compensate for the loss of your job, or for some issue arising from your employment and also so you do not pursue any other claims, or talk about your case.
A legal representative will have knowledge to be able to advise you before you make a decision about which is best for you and that’s where our legal team at Wafer Phillips can help. You can find all our contact details at: https://waferphillipssolicitors.co.uk/