A settlement agreement is where an employee agrees to waive their right to bring legal action against their employer, usually in exchange for a settlement payment.
This is often used in a redundancy arrangement, but it should be noted that redundancy and settlement agreements are NOT the same thing – though they are related.
You might have been offered a settlement agreement, or you may be an employer considering your options ahead of a redundancy situation…
Once they agree on the terms of their exit, the employee will no longer be able to bring a case to an employment tribunal.
Now, I know what you’re thinking – but how much should an employee settle for…
What Is Redundancy?
Redundancy is where the needs of the employer for a work of a specific type has reduced to the point where they don’t need as many staff as they previously did.
However, it can also mean the employer is closing a workplace, and the staff who work there will be asked to relocate. If they’re not able to do so, whatever that reason may be – then they could be made redundant.
The key here is that any employer that finds themselves in a redundancy situation MUST go through a fair redundancy procedure before making any decisions on redundancy.
That could include applying fair selection criteria, consulting with employees, explaining the reasons, exploring whether there might be alternative options, and allowing employees to appeal against their redundancy.
The reality is this can be a difficult situation for employers to manage. It’s time-consuming, involves A LOT of administration, and it’s not conducive to good morale.
Hence why many employers will offer a settlement agreement as an alternative to going through the process of redundancy…
What Is A Reasonable Settlement Agreement?
A settlement agreement will always end up being somewhere in the middle of what the employer wants and what the employee wants, as they ‘settle’ on a number.
A settlement agreement is good for employers because it protects the business AND it ends things once and for all, while still giving the employee something.
It’s not just financial payments that can be agreed upon as part of a settlement arrangement…
There are also non-financial benefits such as gardening leave and confidentially clauses. Plus, employees may keep life insurance, health insurance, and even company cars, phones, and computers.
With that said, if an employee has been dismissed or forced to resign, has been employed for at least 2 years, and has evidence of unfair dismissal, then you should expect to pay between 1-4 month’s salary plus notice pay.
If they have evidence of whistleblowing or discrimination, then that figure could rise to 6 months or more.
This is only a rough guide, though, and any figures will be determined by the individual case, circumstances, and people involved.
Can An Employee Offer A Settlement Agreement Instead Of Redundancy?
One of the most important factors in a settlement agreement is that the employee waives the right to progress through a fair redundancy procedure in exchange for a settlement fee.
Which means it’s worth considering in any redundancy situation where you think there might be an issue.
There are positives for both the employee and employer, given that the employee will receive a financial settlement, both parties can move on, and the employer avoids any legal action further down the line.
However, an employee DOES NOT have to accept the settlement agreement – if they refuse, the employer still has the option to press ahead with the redundancy process.
If this is the case, it might be wise to seek legal advice to ensure that the procedure has been conducted fairly or whether there might be the potential for an unfair or wrongful dismissal claim.
Can An Employee Request A Settlement Agreement?
Yes! An employee CAN request a settlement agreement.
If you’re looking for a quick agreement instead of a long wait for an employment tribunal decision, then it might be a good thing for both parties.
But it is a negotiation, and it’s important that you’re happy with the settlement you come to – both the employee and employer will start with certain goals in mind, and it’s a negotiation to get to an agreement.
Nobody really wants to go to a tribunal – it’s the last resort for employees and employers. Even if you think you could win, it might be a smarter decision to agree to settle.
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