Settlement Agreement vs Redundancy

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When it comes to settlement agreement vs redundancy and choosing the right option as an employer or employee, the best and most professional route forward isn’t always clear. Fortunately, the knowledgeable legal team here at Freeman Jones Solicitors has accumulated years of invaluable experience helping our clients to make the most beneficial redundancy settlement agreement decisions. To help you understand what your legal options are before you make any big decisions, we explain the uses of settlement agreement and redundancy arrangements in more detail below.

Is a settlement agreement the same as redundancy?

No, while a settlement agreement (formerly known as a compromise agreement) can be offered as part of a redundancy arrangement, there is a difference between a redundancy and settlement agreement. In many cases, a settlement arrangement is drawn up between an employer and their employee when their employment with the company is terminated. Often referred to as a redundancy settlement agreement, business owners use these agreements to dismiss employees in an attempt to reduce the size of their workforce. However, a settlement agreement can also be used as a way for an employer to agree to stop treating an employee unlawfully or unfairly. In this instance, the employee often receives a payment in exchange for waiving their rights to bring any kind of legal action against their employer. While it’s rare that a settlement agreement will be drawn up without the termination of employment following after, it can happen.

Differences between redundancy and settlement agreement

As mentioned above, settlement agreements are distinct to redundancy agreements.  To help you understand why these two processes are separate to one another, our team of expert solicitors explains their key differences below. First, the biggest difference between a redundancy and settlement agreement is that a redundancy package means employees are entitled to statutory pay and notice period.  However, with a settlement agreement, the terms for ending the employment can be negotiated appropriately between the employer and employee. It’s important to bear in mind, however, that while a settlement agreement can be more favourable in terms of the employee receiving a higher payment, they may not be entitled to their statutory notice period. As a result, employees considering a settlement agreement must weigh up the payment with their perceived ability to quickly obtain another position after leaving the company. Settlement agreements also tend to be given on an individual basis whereas redundancies are often made on a larger scale, affecting numerous employees at once.

Can you use a settlement agreement in redundancy?

Yes, settlement agreements are commonly used by businesses when creating a redundancy arrangement as it prevents employers from having to go through the full redundancy consultation process.  This often allows the matter to be resolved swiftly and more amicably. However, a settlement agreement isn’t essential when making redundancies and you may be made redundant without the offer of a settlement agreement.

 Is a settlement better than redundancy?

In many cases, a settlement agreement is often a better option for the employee than redundancy. This is because the financial compensation is often significantly higher than the payment the employee would typically receive in a standard redundancy. Furthermore, settlement agreements can also include a reference clause that ensures the employer will provide the employee with an agreed reference. In general, settlement agreements tend to allow for a quicker and more amicable parting of ways than a redundancy. However, every situation is unique, and you may feel that other

legal routes, such as making a tribunal claim, may be more appropriate than accepting a settlement agreement.  With an experienced solicitor on your side, we can help you to understand your options and make the best decision.

Expert support with redundancy & settlement agreements

If you’re still unsure as to whether a settlement agreement is a better option for your specific situation than redundancy, please feel free to get in touch with the experienced team of solicitors here at Freeman Jones Solicitors.   We can provide you with expert guidance, helping employers and employees to negotiate, draw up, and achieve a fair settlement agreement. Reaching out to an experienced settlement agreement solicitor is especially important if you want to bring the matter to a swift conclusion for all parties involved. Serving businesses and individuals across the UK, we have offices in Chester, Liverpool, Warrington, and Wrexham.  To find out more about the wide range of legal services available at Freeman Jones Solicitors including our redundancy & settlement agreements or to discuss your settlement agreement with our team, please feel free to call us on 01244 506 444. We also welcome email enquiries sent to our team via as well as any queries submitted using our online contact form.  Upon receiving your enquiry, you can rest assured we’ll be in touch shortly to arrange your free, no-obligation consultation.

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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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