A settlement agreement is a contract between two parties, often an employer and employee.
In the UK, settlement agreements are often used in the redundancy process as a way for employees to offer a financial settlement in exchange for the employee's agreement not to bring any claims against the employer relating to their redundancy.
A redundancy settlement agreement typically outlines the redundancy terms, including any financial compensation offered, notice periods, and other relevant details. They can come about at any time during redundancy proceedings and they're often more favourable than taking the matter to court or an employment tribunal. That being said, they can come about during legal proceedings too.
Employees facing redundancy may find themselves unsure about whether the settlement offered to them is fair and reasonable. This uncertainty can come about because of the complexity of the legal language contained in the agreement, concerns about the amount of compensation offered, or doubts about their future employment prospects.
In this article, we'll look at 3 signs that can help you assess whether your redundancy agreement is reasonable.
What makes a redundancy settlement agreement favourable?
If you have been made redundant and you've been given a settlement agreement by your employer, you need to get professional advice.
But there are a few things to look for, that might indicate you are starting from a good place:
Settlement payment of 6 months (or more) salary
Finding a new role could take some time. If you can avoid dipping into savings, it's ideal.
If your employer is offering the equivalent of 6 months of salary as a settlement payment, you'll have the time to find the right role without having to eat into hard-earned savings.
Favourable job reference
If your settlement agreement includes a commitment from your (soon to be ex-) employer to give you a positive job reference, it puts you in a strong position.
Especially if your employer makes it clear that redundancy was not their favoured option and ideally they'd have kept you on if things had been different for the company.
Bonus and commission
If you're being made redundant mid-way through the year, you normally won't be owed any annual bonus. If your employer is agreeing to pay a bonus or part of it, it's a good sign.
The same goes for any commission-based payments such as sales commissions.
Other factors to consider when negotiating a fair redundancy settlement
Whether a redundancy settlement agreement is fair and reasonable hinges on the specific circumstances of the case and the strength of your claim.
When assessing the proposed agreement, you should also consider:
The length of your employment;
Your financial situation, including the tax implications of redundancy pay;
Potential risks of taking the case to court.
During this process, employees have the right to negotiate with their employer and push back if they don't think the agreement is in their best interests.
What to do next?
Once you've signed a redundancy settlement agreement, you likely won't have the right to claim more from your employer. Therefore, it's really important to be able to spot the signs of a favourable settlement and signs of a bad redundancy settlement agreement.
You must take professional independent legal advice before agreeing to a redundancy settlement and your employer will usually pay for you to get legal help from a specialist employment solicitor.