Guide to Redundancies & Settlement Agreements

In many circumstances, an employer may need to terminate the employment of either an individual or an entire workforce, such as through redundancy.  

The process of making redundancies can be time-consuming for both parties, so settlement agreements may be a preferable option to reduce management time and ensure a mutually beneficial agreement is reached. 

If your employee has offered you a settlement as opposed to redundancy, you may be curious as to which option is better for you. To help you, we have created the below guide that looks at the pros and cons of redundancy and settlement agreements to ensure you make the most beneficial decision.  

Settlement vs redundancy 

A settlement agreement is a legally binding document, drafted between an employee and their employee, to end the employment on mutually beneficial terms. 

The agreement, sometimes also referred to as a compromise agreement, means the employee waives their rights to bring any kind of legal claim against their employer, usually in exchange for a settlement ex gratia termination payment.  

Redundancy, on the other hand, is done when the company needs to reduce or move its workforce, and employees are consequently dismissed as a result, and it is defined by law and has a specific process that needs to be followed in order to be fair. 

A redundancy agreement may still be included as a settlement agreement, which would be known as a redundancy settlement agreement. 

If your employer is facing the choice of redundancy, then they must follow a fair redundancy process, which can look like the following: 

• Review the pool of employees to identify who is most at risk for redundancy 

• Apply a fair selection criterion 

• Consult with employees before making final decisions 

• Clearly and carefully explain the reasoning behind the redundancy 

• Ensure other alternatives are explored 

• Provide the option for re-deployment if applicable 

• Give employees the chance to appeal to the redundancy decision 

The process may vary from company to company, and the specific process should be clearly outlined in your employee handbook or contract of employment.  

How do you negotiate a redundancy settlement? 

If you have been given a settlement agreement by your employer and you are unhappy with the terms, you may negotiate this to reach a more beneficial agreement. 

A settlement agreement solicitor can negotiate with your employer on your behalf, ensuring the terms of the agreement are amended to suit your needs, proving they are within reason. 

To determine the best possible agreement for you, your dedicated settlement agreement solicitor will review the following aspects: 

• Annual salary 

• Monthly take-home pay 

• How much notice your employer is required to give 

• The circumstances surrounding the termination of your employment 

• The estimated length of time it will take you to find a new job 

Settlement agreement or redundancy? 

Overall, a settlement agreement is often a quicker and safer way to terminate employment for the employer, and this should always be considered a viable option before decisions for redundancies are made.  

Settlement agreements can be mutually beneficial for both employer and employee, as often the employer will offer an employee a higher sum that they would be statutorily entitled to under the settlement terms, ensuring the employment is ended on neutral terms without any risk of ending up at employment tribunal.  

How can Smith Partnership’s employment solicitors help? 

Smith Partnership has a dedicated team of employment law solicitors, specializing in settlement agreements, who can assist you with the likes of negotiating the terms of your employment termination and managing exits. 

To discuss your options regarding settlement agreements and redundancy, please get in touch with us by emailing sa@smithpartnership.co.uk, or calling us at 08000 32 32 02 today.  

We are proud to offer an 8 am to 8 pm contact service, Monday to Friday, which many other legal practices and solicitors do not offer. 

At Smith Partnership, we understand the importance of providing accessible points of contact, which is why we are available via phone, email, or through our contact form at your time of need and can provide advice within 24 hours due to the remote facilities, this can be done on a national basis.