If your employer has told you that your role could be at risk, you’re likely to hear a whole load of terms being thrown around. Two of the most common are settlement agreement and redundancy, which tend to be used interchangeably. While it’s true that they can be linked, they are not the same thing, and understanding the difference is important. Each has its own legal implications and can impact your rights, entitlements and options. So, let’s look at the differences.
What Is Redundancy?
Redundancy is one of the five potentially fair reasons that an employer can give to dismiss an employee under UK employment law. It happens when a business no longer needs a particular role filled, often due to restructuring, closure, or a reduced need.
If an employer is making employees redundant, they must follow a fair process. This means that employees impacted need to be consulted with, using a fair selection criteria when needed, and considering if there are any suitable alternative roles within the organisation that they could potentially fill.
If you have at least two years of continuous service, chances are you are entitled to statutory redundancy pay, although many employers offer enhanced packages anyway.
What Is A Settlement Agreement?
A settlement agreement however is a legally binding contract between an employer and an employee that brings the working relationship to an agreed end. Employees agree not to pursue legal claims against the employer in exchange for financial payment, or some other form of agreed benefit. But, for this to be valid under UK law, the employee must have received independent legal advice before the signing.
These are often used for performance issues, disciplinary matters, and workplace disputes. Essentially, both parties get to agree to the terms of the exit without legal issues.
Can You Be Offered A Settlement Agreement During Redundancy?
The short answer is yes, you can. Many employers do offer settlement agreements alongside the redundancy process.
An example of this would be if an employer offers an enhanced financial package if an employee agrees to leave under a settlement agreement rather than going through the full redundancy process. This agreement can include other benefits as well.
Whether you choose to accept a settlement agreement is voluntary though, and if you choose not to sign then your employer will still need to continue through the fair redundancy process.
Why Independent Legal Advice Matters
Signing a settlement agreement often removes your rights to bring up certain employment claims. As such, it’s important to know what you are signing and agreeing to before you do this. An employment solicitor can explain the terms of the agreement, point out anything that might need amending, and ensure that the compensation being offered reflects your circumstances accurately.
A lot of the time, employers will contribute to the cost of this legal advice, as they understand that it’s necessary before you can sign the settlement agreement. Finding a fantastic solicitor is the first step if you think that you might be interested in one of these.