Settlement Agreement or Redundancy: Which is the better option?

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Has your employer offered you a Settlement Agreement or perhaps you’re considering taking voluntary redundancy? If you’re wondering which option is best for your current workplace situation or you’d like to explore both redundancy arrangements and Settlement Agreements in more detail, our team of highly knowledgeable and experienced solicitors can help.

From the legal requirements of a redundancy process to the essential criteria of a Settlement Agreement, we outline everything you need to know. Below, we explore the difference between a Settlement Agreement and a redundancy arrangement to support both employers and employees in making the right decision for their business or career.

Settlement Agreements: What do I need to know?

Put simply, a Settlement Agreement (also referred to as a redundancy Settlement Agreement) is a written, legally-binding contract that outlines the terms of an employee’s termination. Made between an employer and employee, a Settlement Agreement often defines the amount and type of termination payments including the employee’s notice period salary, redundancy, holiday, bonus and any additional tax-free payments.

Most notably, Settlement Agreements will include any non-disclosure agreements (NDAs), warranties, tax indemnities and legal costs. Settlement Agreements also feature clauses stating that the employee agrees not to bring legal claims against the employer for a variety of reasons including unfair dismissal, discrimination or breach of contract.

The exact date of termination will also be outlined in this document. While best practice recommends at least 10 days, this can often be negotiated depending on the requirements/preferences of both the employee and employer. As a Settlement Agreement is a legally-binding contract and a solicitor is required to certify the agreement, it’s crucial that both employers and employees receive independent legal advice before agreeing to sign any documentation.

What happens after the Settlement Agreement has been signed?

Following the signing of a Settlement Agreement, the employee no longer has the right to take the employer to a tribunal. This is because the contract dictates that they must relinquish their right to make an employment claim. Instead of going through the lengthy and costly process of an employment tribunal, a Settlement Agreement is a less stressful alternative that also allows the employee to leave the workplace on good terms.

Depending on the exact terms of the Settlement Agreement, the employee will often receive a financial payment on top of non-financial benefits such as a work reference. In the event that the employee decides not agree to sign the Settlement Agreement, which is within their rights, they can either go through the redundancy procedure or raise a tribunal claim against their employer.

What is a redundancy settlement arrangement?

Legally, redundancy refers to the process of an employer terminating the contract of at least one employee due to the lack or reduction of a certain type of work. Put simply, the employer no longer needs to employ as many staff as it used to. If a business is downsizing, for example, redundancies will be inevitable.

In some cases, the employer will cease to do business at one location and encourage the transfer of staff from the closed location to a location that is remaining open. In the event that the open location is based too far away or there are not enough positions, the employer may still choose to make staff redundant. To do this, the employer will need to;

  • Identify those at risk of redundancy
  • Use a fair selection criteria
  • Consult with employees in at least one meeting
  • Detail their reasoning for the redundancies
  • Explore the redundancy alternatives
  • Explore whether staff could be re-deployed to another role or location
  • Offer employees the chance to appeal their redundancy

While the redundancy procedure for each company will vary (the process should be clearly outlined in either your contract or staff handbook), there is one primary stipulation that all redundancy procedures should include. First and foremost, the redundancy procedure must involve at least one meeting between the employee and employer before the employer comes to their final redundancy decision.

During this meeting, the redundancy reason should be made clear as well as why they’re choosing to make the individual employee redundant. The employer should also discuss any other available positions and whether the employee has any questions. If you’re an employee or even an employer that requires support with this process, it’s a good idea to have a member of HR present to take notes.

It’s worth bearing in mind, however, that the employee is only entitled to a fair redundancy process if they have been employed by the company for at least two years by the time their job ends. If this applies to your redundancy situation, there are still rules that the employer must follow in order to ensure the redundancy process and package is fair.

Is a Settlement Agreement the same as redundancy?

While Settlement Agreements are often used in a redundancy situation, they are not the same as a redundancy arrangement. A Settlement Agreement is a quicker and safer way for employers to terminate an employee’s contract when compared to a redundancy. It’s typically embraced by the employee as it involves an enhanced redundancy payment (more than the legal minimum) in return for the employee waiving their right to a fair redundancy procedure.

Redundancies are often offered under different circumstances, too. Settlement Agreements are often provided on an individual basis, while redundancies typically affect a larger group of employees during a period of massive business upheaval. Redundancies are often a strain on both company resources and time (especially if an employee believes they’ve been dismissed unfairly), so Settlement Agreements are often preferable in many cases.

Generally, Settlement Agreements are offered to an employee by the employer when they want to end the employee’s contract of employment on a positive note. Often, Settlement Agreements allow the employer to terminate the employee’s contract on mutually agreeable terms, allowing for a quick and clean resolution to any dispute without involving the courts or pursuing a tribunal claim.

Settlement Agreements in redundancy situations

Previously known as Compromise Agreements, a redundancy arrangement is typically included in a Settlement Agreement, hence why this contract is also known as a redundancy Settlement Agreement. While a redundancy arrangement can be part of this settlement, a Settlement Agreement can be offered to an employee by their employee for a number of different reasons.

An employer might offer a Settlement Agreement to an employee if there is an underlying dispute between the two parties, the employee is medically unfit to return to work or the employee does not want to return to work following maternity leave.

In a redundancy situation, a Settlement Agreement is typically the first port of call as it has benefits for both the employer and employee. Both parties no longer have to go through the time-consuming process of a tribunal, the employee receives an enhanced redundancy payment, and the employer can focus on running their business without worrying about the employee making a tribunal claim.

Do Settlement Agreements require a solicitor?

Yes, all Settlement Agreements should have a solicitor present for a number of reasons. According to the current law, not only should the employee receive independent legal advice from a qualified solicitor, but the solicitor should also be present to certify the agreement, confirm the employee has received the right advice and that professional indemnity insurance is in place.

The effects of the terms and conditions of the legally-binding agreement should be made clear to the employee. This will help to prevent the employee from inadvertently waiving certain rights without receiving the right amount of compensation. This includes ensuring that the employee realises they are waiving their right to an employment tribunal if they agree to sign the settlement.

The solicitor can also advise the employee as to whether the financial amount being offered in the Settlement Agreement is fair and adequate, thereby supporting the employee (or even acting on their behalf) if they wish to negotiate the amount of compensation. Alternatively, the solicitor may advise that the employee raises a tribunal case against the employer if they believe they have a strong case.

Without this legal advice, the Settlement Agreement is deemed invalid and the employee will be able to make a tribunal claim against the employer. Having a solicitor present for Settlement Agreements is therefore not only beneficial for the employee, but also for the employer, effectively protecting the interests of both of the concerned parties.

Should you choose a Settlement Agreement or redundancy?

Regardless of whether you’re an employer or an employee, opting for a Settlement Agreement at least before you consider redundancy is often the best choice, but why? As an employee, you have the right to negotiate or simply not agree to the terms laid out in the Settlement Agreement. In this case, you’re likely to be made redundant anyway and will have to make a tribunal claim against your employer if you feel you’ve been unfairly dismissed.

As an employer, the terms of a Settlement Agreement are often more agreeable for the employee and less time-consuming and resource-draining for the business than making redundancies. Initially offering Settlement Agreements could therefore be the best way forward for both the employer and the employee. Ultimately, however, it’s always worth seeking independent legal advice from a qualified professional in order to receive bespoke guidance for your specific situation.

Settlement Agreements at Freeman Jones Solicitors

A leading law firm based in Chester, our experienced team of solicitors can provide expert legal advice and guidance on a variety of Settlement Agreements. Due to the nature of Settlement Agreements, these agreements often require negotiating and signing as soon as possible. In order to bring these matters to a quick conclusion, we therefore offer urgent appointments with results in just a few days if necessary.

Servicing clients across the UK, including locations such as Wrexham, Liverpool, Warrington and North Wales, we offer premium legal support to clients across the country for affordable prices. At Freemans Jones Solicitors, our lawyers are well-versed on a wide range of legal matters as well as being specialists in their own field of law.

On top of this considerable base of knowledge, our lawyers also endeavour to stay up to date with any ongoing legal changes, ensuring our clients receive only the most relevant and high-quality legal advice. If you’d like to find out more about our outstanding reputation or the quality of our previous work, please don’t hesitate to explore our array of positive testimonials.

Known for providing an unparalleled level of customer service, our clients are always impressed by our exemplary standard of communication, support and knowledge. Most importantly, our team works together to provide tailored legal advice based on your specific circumstances.

Regardless of whether you require legal assistance with an employee Settlement Agreement or help creating a redundancy agreement, please get in touch to find out more about our Settlement Agreement service. To discuss your case with one of our experienced and knowledgeable solicitors today, please don’t hesitate to either give us call on 0333 009 0808 or send us an email to

No matter how you choose to contact us, we offer a free 30-minute consultation where we can discuss your requirements in more detail.

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Author Colin Freeman View Profile
Colin qualified as a solicitor in 1998. He specialises predominantly in family law, litigation / dispute resolution, wills, probate and settlement agreements and has notable cases reported in the Court of Appeal and High Court.
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