Settlement Agreements In Redundancy

• Published date: 23 December 2022
• Subject Matter: Employment and HR, Redundancy/Layoff, Employment Litigation/ Tribunals
• Law Firm: Giambrone & Partners
• Author: Ms Daniel Theron

Settlement agreements, a legally binding agreement between an employer and an employee ending the employment relationship are generally invoked when a dispute arises and it has been decided to resolve the dispute without recourse to litigation and without the potential for the employee to take the employer to the tribunal or to court at a later date.

However, settlement agreements are often used by employers in a redundancy procedure and nearly always include an enhanced redundancy payment. A settlement agreement applied in a redundancy procedure enables the employer to save considerable time and avoid the normal drawn out redundancy procedure and the potential for employment tribunal claims making the settlement agreement option an attractive option.

The validity of a settlement agreement is regulated by Section 203(3)(c) of the Employment Rights Act 1996 and is entirely voluntary. Usually a meeting or a number of meetings take place to discuss the terms of the agreement. Employers must not in any circumstances put pressure on an employee to accept a settlement agreement by way of suggesting that the employee's selection for compulsory redundancy has already been decided and that they (the employee) has no choice but to accept. It is possible that after a series of discussions both parties conclude that an agreement is not possible.

Daniel Theron, a partner, commented "in order for a settlement agreement to be valid an employee must receive independent legal advice to ensure that the employee fully understands the implications of waiving their right to bring a claim at a later date." Daniel further commented "there is no legal obligation to do so but many employees offer a sum of money to their employee, to facilitate a speedy resolution. This is generally a nominal fee that the same company adopts. A settlement agreement is not necessarily valid if the employee has not received independent legal advice. In this event, they may be entitled to bring a claim against their former employer within the time frames of employment law."

The rules governing a settlement agreement are as follows:

• The settlement agreement must outline the circumstances leading to the agreement including the relevant claims
• The employee must have received independent advice from a relevant independent adviser
• The advisor must be identified
• The adviser must have current professional indemnity insurance covering the risk of a claim arising from an employee's loss relating to the legal...