If your employer has told you that your role is at risk of redundancy, you may be wondering whether you can request a settlement agreement instead. This can be an attractive option, particularly if you want to negotiate a better financial package or agree on the terms of your departure.
A settlement agreement can offer greater certainty and flexibility than a standard redundancy process. However, it is important to understand how these agreements work, what you may be entitled to and whether your employer has to consider your request.
Can you ask for a settlement agreement instead of redundancy?
Yes, you can ask your employer to consider a settlement agreement if your role is at risk of redundancy. However, your employer does not have to agree to your request.
A settlement agreement allows you and your employer to negotiate the terms on which your employment will end. For example, you might agree on an enhanced financial payment, a suitable leaving date or the wording of an employment reference.
Some employers may welcome this approach because it provides certainty and reduces the risk of future employment disputes. Others may prefer to continue with their existing redundancy process, particularly if they believe they have followed a fair procedure.
If your employer declines your request, this does not affect your existing employment rights. They must still comply with the legal requirements that apply to the redundancy process.
Before proposing a settlement agreement, you should also consider whether you have any grounds to challenge the redundancy. For example, your employer may have failed to consult properly, used unfair selection criteria or overlooked suitable alternative employment.
These issues could affect your negotiating position, as a settlement agreement will usually require you to waive specified employment claims.
What is the difference between redundancy and a settlement agreement?
Redundancy occurs when an employer closes a business or workplace, or no longer needs as many employees to carry out work of a particular kind. It is a potentially fair reason for dismissal, provided the employer follows a fair process.
Depending on the circumstances, that process may include meaningful consultation, fair selection criteria and consideration of suitable alternative roles.
Employees who have completed at least two years of continuous service will generally qualify for statutory redundancy pay, subject to the relevant eligibility rules. Employers may also offer enhanced redundancy payments under a contract or workplace policy.
A settlement agreement is different because it is a legally binding contract that records the terms agreed between an employer and an employee.
It usually sets out the payments the employee will receive and identifies the employment claims they agree not to pursue. The agreement may also cover matters such as confidentiality, references and the employee’s departure date.
Importantly, redundancy and settlement agreements are not mutually exclusive.
An employer can dismiss an employee by reason of redundancy and use a settlement agreement to record an enhanced exit package. This is common where the employer offers an additional payment in return for the employee agreeing not to bring certain claims.
However, the legal basis on which your employment ends is important. If you agree to terminate your employment by mutual consent rather than through a redundancy dismissal, this may affect your entitlement to statutory redundancy pay.
You should therefore check that the agreement accurately reflects the circumstances of your departure and protects any payments you are entitled to receive.
Can you negotiate a better payment through a settlement agreement?
One of the main reasons employees consider a settlement agreement during redundancy is the opportunity to negotiate a more favourable financial package.
Your employer may be willing to offer an enhanced payment in exchange for a legally binding agreement that settles potential employment claims. However, there is no automatic entitlement to an additional payment simply because you request a settlement agreement.
The amount you can negotiate will depend on your individual circumstances, including your length of service, contractual entitlements and any potential claims arising from the redundancy process.
For example, if your employer has failed to consult properly or has used an unfair selection procedure, this may strengthen your negotiating position.
It is important to distinguish between payments your employer already owes you and any additional compensation you are seeking.
Depending on your circumstances, you may already be entitled to statutory redundancy pay, contractual redundancy pay, notice pay, outstanding salary and payment for accrued but untaken holiday.
Your employer cannot generally make payment of your statutory redundancy entitlement conditional on signing a settlement agreement. However, it may require you to sign one before receiving an additional discretionary payment.
You should also consider the tax treatment of the proposed package.
Qualifying redundancy and termination payments may benefit from a tax exemption of up to £30,000 in total. However, payments relating to salary, holiday entitlement and notice will generally be taxable.
A clear breakdown of the proposed payments can help you understand the financial value of the offer and avoid unexpected deductions.
Do you need a solicitor for a settlement agreement during redundancy?
For a statutory settlement agreement to validly waive employment claims, you must receive advice from a qualifying independent adviser.
A solicitor can provide this advice, although certain other qualified advisers may also meet the legal requirements.
Your adviser must explain the terms of the agreement and how they affect your ability to bring employment claims. They can also review the financial package and identify any provisions that may require further negotiation.
This is particularly important during redundancy, as you need to understand which payments you are already entitled to receive and which payments your employer is offering in addition.
Employers will often contribute towards the cost of independent legal advice as part of the settlement package. However, they are not automatically required by law to cover those fees.
You should also have a reasonable opportunity to consider the agreement before signing. Acas guidance recommends allowing at least 10 calendar days to consider a formal written settlement offer, unless both parties agree otherwise.
At Pre-Law, we can review your settlement agreement, explain how it affects your redundancy rights and help you negotiate terms that reflect your circumstances.
If your employer has placed your role at risk of redundancy or offered you a settlement agreement, contact Pre-Law for advice before agreeing to the terms of your departure.
