Deciding between a settlement agreement and redundancy can be complex for both employees and employers. At Freeman Jones our settlement agreement solicitors draw on years of experience to guide clients through choosing the best legal path. Below, we break down the definitions, key distinctions, pros/cons, and when one might be preferable over the other.
1. Definitions & Core Concepts
Settlement Agreement
A legally binding arrangement (formerly called a compromise agreement) between an employer and employee that sets out terms for ending employment. It often includes a financial payment in exchange for the employee waiving legal claims.
(Note: sometimes called a “redundancy settlement agreement” when used in redundancy contexts.)
Redundancy
A statutory process by which an employer ends employment because the role is no longer needed (e.g. business changes, downsizing). Employees made redundant are typically entitled to statutory redundancy pay and notice periods.
2. Key Differences & Distinctions
| Feature | Settlement Agreement | Redundancy |
|---|---|---|
| Legal Entitlement | Terms are negotiated (employer and employee agree) | Statutory rights apply (notice period, redundancy pay) |
| Notice Period | May not include statutory notice | Includes statutory notice (or contractual notice) |
| Scale | Often individual | Often several employees at once |
| Flexibility | High — terms, payments, clauses negotiable | Lower — subject to statutory rules |
| Legal waiver | Employee typically waives rights to bring future claims | No waiver — employee retains rights unless settlement offered |
| Speed / amicability | Usually quicker and more amicable | More procedural — consultation, process, possibly disputes |
3. Can a Settlement Agreement Be Used in Redundancy?
Yes. Employers frequently use settlement agreements as part of redundancy processes. Doing so can allow them to avoid the full redundancy consultation procedures, achieving a faster and less contested resolution. However, there is no legal requirement for a settlement agreement in a redundancy scenario — redundancy may proceed without one.
4. Is a Settlement Agreement Better Than Redundancy?
Often, for the employee, a settlement agreement can be more favourable than redundancy because:
- The monetary compensation tends to be higher than statutory redundancy payments.
- It may include additional benefits or clauses (e.g., favourable reference).
- It enables a more amicable, faster exit for both sides.
However:
- You might forgo your statutory notice period.
- Whether it is “better” depends on circumstances — sometimes pursuing tribunal claims or other legal routes is more appropriate.
5. Expert Support & Legal Advice
If you are uncertain whether a settlement agreement or redundancy is better in your specific circumstances, it is critical to seek legal advice. At Freeman Jones Solicitors, we assist both employers and employees to:
- Negotiate favourable settlement agreements
- Draft legally sound terms
- Understand statutory entitlements and risks
We serve clients across the UK with offices in Chester, Liverpool, Warrington, and Wrexham.
You can contact us via phone, email, or the online contact form to arrange a free, no‑obligation consultation.
