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What are my rights when offered a settlement agreement due to redundancy?

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In these difficult economic times many employees may find themselves facing redundancy.  If you are offered a settlement agreement due to redundancy, it is important you understand your rights and the rights you could be waiving should you sign the agreement.  Our Employment Law team outline here the key facts you need to know if you are offered a settlement agreement, and how we can help answer any additional questions you may have.

What is a settlement agreement?

Settlement agreements are legal contracts used to settle disputes between an employee and their employer.  Generally, you agree not to bring a claim against your employer in exchange for some form of compensation.  This could be financial compensation or an alternative, like a favourable reference.

What are the benefits to signing a settlement agreement?

According to statute, when an employer decides to make redundancies, they must go through a consultation process with the affected employees.  This process can be time consuming and stressful for both parties, especially if the employer is making many redundancies at once.  Settlement agreements allow employers and employees to forgo the consultation process and achieve a “clean break.”  The employees may then receive more money than they would be entitled to through statutory redundancy payments.  Employers may also prefer settlement agreements because they preclude the employee from submitting a tribunal claim for unfair dismissal at a later date.

What rights do I have as an employee?

If you are offered a settlement agreement, you have a right to independent legal advice. “Independent” means that the adviser is neither employed for, nor acts for, your employer.  Legal advice can be provided by a lawyer or another certified adviser, such as a trade union representative and the advice must be from someone who is legally qualified and who has insurance to cover the advice that they give. 

If you sign without receiving independent legal advice, the agreement will not be valid.  Consequentially, some employers may pay or contribute to your legal fees.  The purpose of obtaining legal advice is to ensure you understand the settlement agreement and its consequences.  Your adviser should explain the terms of the agreement, their effects and they may also be able to help you negotiate if you feel that you are entitled to more than you are being offered.

Upon being offered a settlement agreement, you do not need to decide immediately whether or not to accept.  You are entitled to reasonable time to review and consider the settlement offer.  What is “reasonable” will depend on the circumstances but it should be enough time for you to obtain legal advice and weigh up the benefits and detriments of accepting the offer.   If your employer puts you under undue pressure then it may impact on whether you are able to disclose the offer as part of a claim in the Employment Tribunal.   ACAS have given guidance on what amounts to ‘undue pressure’ and have stated that employers should allow employees 10 calendar days to consider a settlement agreement offer.

You do have the right to refuse to sign the settlement agreement if you feel that it is not a fair offer.  However, you should be aware that there are risks to rejecting a settlement agreement.  If your employer goes through the redundancy process and your redundancy dismissal is fair, you will only be entitled to statutory redundancy pay, which may be less than you have been offered in the settlement agreement. You may also be left to pay your legal fees yourself as your employer’s commitment to pay some or all of your legal fees may only apply if you decide to sign the agreement.

What rights am I waiving by signing a settlement agreement?

If you do decide to sign the agreement, you should also be aware of the rights you are giving up. Once you sign a settlement agreement due to redundancy, your employment comes to an end and so will waive the following rights:

  • You will no longer have the right to a consultation or statutory redundancy pay.
  • You will also waive your right to bring any tribunal claims against your employer, including claims of unfair dismissal and discrimination.
  • The settlement agreement may also contain a confidentiality clause. This clause will prevent you from speaking ill about your previous employer, regardless of whether or not it is true.

These implications should all be explained to you by your legal adviser.

Redundancy is a difficult and stressful process, but knowing your rights can make it feel a little more manageable.  If you have been informed that your role is at risk of redundancy and you have questions about the next steps, or you have been asked to sign a settlement agreement, then you can contact us today on 023 8071 7717 or email employment@warnergoodman.co.uk

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.