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Settlement Agreement Or Voluntary Redundancy

Posted on 11/02/2021 under redundancy, Uncategorized,

Although the government’s Coronavirus Job Retention Scheme, commonly known as the Furlough Scheme, was put in place to stem the anticipated wave of pandemic-driven job losses, redundancies are happening at an alarming rate.  According to the latest labour market overview from the Office for National Statistics, in the three months to November 2020, the redundancy rate reached a record high of 14.2 per thousand.  Rumours of workplace redundancies usually result in an atmosphere of stress and low morale – neither of which help facilitate calm, logical decision making.  This is where our Settlement Agreement Solicitors can help.  Some employers will offer a choice between accepting a Settlement Agreement or voluntary redundancy.  This article explains the differences between the two and provides the vital information you need to make the right decision for your situation.

What is the difference between a Settlement Agreement (formally known as a Compromise Agreement) and redundancy?

Although Settlement Agreements are often used in redundancy situations, they are not the same.  A Settlement Agreement is a contract between you and your employer in which you agree to waive your right to bring a claim against your employer in the Employment Tribunal in exchange for a financial settlement.

Redundancy, on the other hand, is governed by the Employment Relations Act 1996.  Dismissal is only considered valid via redundancy if one of three situations applies: business closure, workplace closure, and reduction of the workforce.  Furthermore, your employer must comply with all legislative requirements relating to making staff redundant.

What is voluntary redundancy?

If your employer is planning to make redundancies, you can choose to volunteer to be made redundant before or during the official selection process.  Your employer does not have to make you redundant upon request, they may consider your skills and experience too valuable to lose. 

Although accepting voluntary redundancy brings your employment to an end, you are still entitled to claim your statutory redundancy rights; for example, being given adequate notice so you can search for a new job.

Would I achieve a greater financial settlement by taking voluntary redundancy or negotiating a Settlement Agreement?

Voluntary redundancy normally comes with a financial settlement which is higher than what you could expect from statutory redundancy pay.  Likewise, Settlement Agreement compensation is usually more than what the Employment Tribunal would award if you brought a claim. 

The amount you could be offered in both scenarios will depend on factors such as your age, length of employment, how easy it would be for you to find a similar position and your current salary. 

You can use the government’s redundancy calculator to work out your statutory redundancy pay.  This will provide a base figure from which you can negotiate compensation.  You can also find a Settlement Agreement calculator on our website to help you determine how much compensation you could be awarded under this route.

It is important to note that the first £30,000 of voluntary redundancy or Settlement Agreement compensation is tax-free. 

Our Settlement Agreement Solicitors have the in-depth knowledge and experience needed to estimate how much you could expect in a Settlement Agreement or a voluntary redundancy situation. 

Should I take voluntary redundancy or a Settlement Agreement?

The decision as to whether to take voluntary redundancy or a Settlement Agreement will depend on your situation.  Because redundancies are going to occur anyway, your employer may be less inclined to negotiate your voluntary redundancy payment, adopting a ‘take it or leave it’ approach.  In this scenario, a Settlement Agreement may be more advantageous to you.  If this is the case, you may want to consider highlighting the potential risk to your employer’s reputation if you were to bring an Employment Tribunal claim.  Tribunal decisions are public and can considerably damage a business’s brand and the ability to attract skilled talent.  Fear of negative publicity may persuade your employer to negotiate a Settlement Agreement in which they can insert a confidentiality clause.

You must keep in mind whether you may want to bring a future Employment Tribunal claim.  By signing a Settlement Agreement, you are legally bound to waive your rights to bring a claim.  However, if you take voluntary redundancy, you will not be prevented from bringing a claim for discrimination or another applicable reason.

Final words

The consequences of ending your employment in a time of significant job losses should not be underestimated.  It is vital to seek advice from a Settlement Agreement lawyer on which option – voluntary redundancy or a Settlement Agreement – will best protect your financial future and legal rights.

Have more questions about settlement agreements and redundancy? Call Settlement Agreement Solicitors today on 0800 048 5667 or fill in your details below to request a callback.