Rather than going through a lengthy and time-consuming redundancy procedure, it is common for employers to try and reach a settlement agreement with the affected employee.

A settlement agreement (formerly known as a Compromise Agreement) is a legally binding document between an employer and employee which settles any claims that arise from the employment relationship or the termination of employment. In essence, an employee waives their rights to bring legal claims against their employer in return for a discretionary severance payment.

Exclusive Bonus: Get our free Employer’s Definitive Guide on Settlement Agreements to find out more about the key characteristics of settlement agreements.Download Now

So how they can help in redundancy situations?

Typically most legal claims regarding statutory and contractual rights can be waived as part of the agreed terms in a settlement agreement, including unfair dismissal, discrimination and entitlement to statutory redundancy pay. By waiving these rights, the employer has the peace of mind that they will not have to spend considerable time, resource and money defending a claim in an Employment Tribunal.

Depending on the nature of the circumstances, settlement agreements may be a quicker and more cost-effective way to terminate the employee’s employment than going through a formal redundancy procedure.

Remember that in cases of small-scale redundancies (fewer than 20 redundancies in 90 days at one establishment), there are a number of things that you need to do in order to make the process fair, including warning employees of redundancies, creating and applying fair and non-discriminatory scoring criteria, consulting with employees and thinking through suitable alternative employment options. In cases of large-scale redundancies (more than 20 redundancies in 90 days at one establishment), you will also need to adhere to collective consultation rules. If you are making 20 to 99 redundancies, you must consult for at least 30 days and if you are making over 100 redundancies, you must consult for at least 45 days before dismissal.

Plus settlement agreements can help avoid bad publicity. In the agreement, there should be an agreement to a ‘non-derogatory’ clause, which stops the employee from making negative or derogatory comments about the employer, including on social networking sites.  You should also agree that the terms of the agreement and the circumstances surrounding the termination are kept confidential.

No deal?

You cannot force an employee to agree to the terms and conditions that you wish to enforce. If they think, after advice from an independent legal adviser, that it is not right for them, you will need to resort back to the formal redundancy procedure and go through all the hoops to terminate the employee’s employment. We would recommend that you seek legal advice from your Employment Law Adviser before taking action.

Even when you and the employee cannot reach an agreement, there are some circumstances where the negotiation discussions cannot be used as evidence in legal proceedings by either party to support their cases.

Exclusive Bonus:Get our free Employer’s Definitive Guide to Settlement Agreements to learn more about the ‘without prejudice’ principle and section 111A of the Employment Rights Act 1996.Download Now

Remember…

Settlement agreements are not the solution to every problem. To explore whether it is the right choice for you, speak to you Employment Law Advisers. Your adviser will learn about your organisation and the way you work. They will be familiar with other employers in your sector so you will benefit from their experience of implementing best practice in other organisations.

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