Is a settlement agreement different from redundancy?

Yes. A settlement or compromise agreement is a list of terms which both parties agree to regarding the termination of an employee’s employment, which waives their right to bring legal action against the company (unless in circumstances listed above) in exchange for a compensation payment.

Settlement agreements can vary dependant on negotiations between the parties and the individual circumstances involved, whereas redundancy is defined by law. Redundancy is a last resort option for companies who find they need to let go of workers, usually to save company finances that are in trouble. Workers are chosen for redundancy through objective processes; whereas settlement agreements are usually brought on the basis that the worker is underperforming or no longer wanted within the business, but the company has no legal reason to fire them.

However, sometimes employers may offer workers settlement agreements as a favourable alternative to undertaking a lengthy and stressful redundancy procedure. The employee may choose to take a settlement deal as they could receive more money than going through redundancy – they should ask for legal advice to ascertain this. Employers should be aware, though, that employees do not have to sign settlement agreements to leave the company, whereas they are compelled to by law through redundancy procedures.

To determine the best course of action on either side, visit our Redundancy page to learn more, and call Helix Law to book a consultation.