Redundancy Settlement Agreements to Protect Your Rights and Secure a Fair Exit

What is a redundancy settlement agreement?

A settlement agreement is a legally binding contract between an employer and an employee that agrees the terms upon which that individual’s employment is terminating. These agreements can be used when employment ends due to redundancy, although they can arise for a variety of reasons.

In most cases, the employee receives a financial package. In return, they agree not to bring claims to an employment tribunal, ensuring a clean break for both sides.

Why use a settlement agreement in redundancy?

When a redundancy process takes place, there is a risk of legal claims. These can include unfair dismissal, redundancy pay disputes, or discrimination claims.

A redundancy settlement agreement gives the employer protection against future claims. For employees, it provides certainty and financial security. It can also speed up the process and avoid the stress of legal proceedings.

Why employers pay for your legal advice

For a redundancy settlement agreement to be valid in the UK, the employee must receive independent legal advice.

Employers will usually pay for the employee’s legal costs due to the fact that the advice and costs are necessary.

Typical clauses in a redundancy settlement agreement

Although every redundancy settlement agreement is tailored, common clauses include:

• Redundancy payment – covering statutory and enhanced redundancy pay. This is calculated based on your age, length of continuous service, and gross weekly pay (subject to the legal weekly pay cap). Some employers also offer enhanced redundancy pay, which is more generous than the legal minimum. If you have less than 2 years’ service, you are not entitled to statutory redundancy pay, but you must still receive your notice pay and any accrued holiday pay.
• Notice pay – this may be paid in lieu if you are not working your notice period.
• Accrued holiday pay – payment for unused annual leave.
• Confidentiality clauses – stopping either party from disclosing the terms or reasons for redundancy.
• Non-disparagement clauses – preventing negative comments about the other party.
• Waiver of claims – confirming you will not pursue certain legal claims.
• Reference clauses – agreeing the wording of your employment reference.

Some agreements may also include post-termination restrictions, such as non-compete clauses.

Benefits of a redundancy settlement agreement:

For employees, a redundancy settlement agreement offers peace of mind; you receive a clear financial package and legal certainty.

For employers, it prevents costly and time-consuming legal disputes. Settlement agreements can also help preserve professional relationships after redundancy.

If you have been offered a redundancy settlement agreement, it is vital to seek expert legal advice before signing. At mlplaw, our specialist employment solicitors will review your agreement, explain your rights, and, negotiate the best possible terms.

Contact our employment law team today at employment@mlplaw.co.uk for confidential advice.