Do you need a settlement agreement when agreeing voluntary redundancy?

We are often asked why offering a settlement agreement would be necessary where the employee has been offered voluntary redundancy as an alternative to compulsory redundancy, the offer has been accepted and everything surrounding the termination seems amicable.

Despite employment ending mutually, there is nothing to prevent an ex-employee from lodging an employment tribunal claim.

A settlement agreement is one of the only methods to prevent an employee from bringing future claims against the company (excluding future personal injury and pension claims, which cannot be waived). In order to ensure that an employee is prevented from bringing a claim, the settlement agreement must be in a prescribed format.

This illustrates one important benefit of offering a settlement agreement, which is the peace of mind for businesses.

In return for the employee agreeing to settle any future claims, a termination payment will usually be offered, which may include an enhanced redundancy payment or a compensatory settlement figure. Termination payments using a settlement agreement are tax free up to £30,000.

If an employee has agreed voluntary redundancy, this payment is usually above the statutory minimum in any event.

To make the agreement legally binding, the employee needs to take advice from an independent lawyer to explain the agreement. The employer will usually pay a contribution towards the employee’s legal fees to have this explained.

It is always advisable for businesses to weigh up the cost of adding an enhancement to a redundancy payment and securing this under a legally binding settlement agreement against the threat of a future employment tribunal claim.

How can we help?

We are experienced in preparing settlement agreements and advising whether offering a settlement agreement is suitable taking into account the circumstances and background.

If you have any queries or wish to discuss the benefits of a settlement agreement, please do not hesitate to contact one of our experienced Employment Lawyers on 01202 525333 for further advice.