Terminating an employee’s contract is a significant decision that requires careful consideration. The process varies depending on the circumstances and the reason for termination, as well as whether the employee agrees to the ending of their employment. It’s essential for employers to understand the differences between the available processes and their legal obligations.
What Does Redundancy Mean?
Redundancy occurs when an employee is dismissed because their job role is no longer required. This is often a result of workforce reductions, restructuring, or changes in business operations. Redundancy is generally based on business needs rather than the individual’s performance.
What is a Settlement Agreement?
A settlement agreement is a legally binding contract between an employer and employee designed to terminate employment on mutually agreed terms. Settlement agreements are often used to resolve or avoid workplace disputes, ensuring both parties agree to the terms of separation and any associated benefits.
The Reason for Ending Employment
The reason for termination is a key distinction between redundancy and a settlement agreement:
- Redundancy – The role itself is no longer needed. A person cannot be made redundant if the business plans to continue the role with someone else.
- Settlement Agreement – Typically used when there is a dispute or potential for a dispute, allowing both parties to end the employment amicably and avoid legal action.
Voluntary or Compulsory?
Redundancy and settlement agreements also differ in terms of consent:
- Redundancy – Can be implemented even if the employee disagrees. Selection for redundancy must be fair and objective, often based on criteria such as length of service, performance appraisals, or disciplinary records. Employers may also ask for volunteers, but the process remains largely compulsory.
- Settlement Agreement – Completely voluntary for both parties. The terms are negotiated to ensure mutual benefit, often to prevent a case from going to an employment tribunal.
There can be overlap: a redundancy process may include a settlement agreement to provide additional benefits, but the redundancy itself remains compulsory, while the agreement is voluntary.
Legal Status of the Termination
The legal framework for each process is different:
- Redundancy – A statutory process that does not require employee consent. Employees made redundant may be entitled to:
- Statutory redundancy pay (for employees with over two years’ service)
- Holiday pay, unpaid wages, and company benefits
- Notice period pay or payment in lieu of notice
- Settlement Agreement – A contractual process that sets out negotiated terms. Common provisions include:
- Employee waiving the right to bring a claim to an employment tribunal
- Employer providing severance pay or other agreed benefits.
How We Can Help
Employers considering redundancy or employees going through the process can benefit from expert legal advice and guidance. Similarly, if you are involved in a workplace dispute that may go to an employment tribunal, we can assist in negotiating a settlement agreement that protects your interests. Drafting a legally binding settlement agreement should always be done with the support of an employment law professional.
For more information or for expert advice on business or personal legal issues, contact us by email at info@carterbond.co.uk or call us on 020 3475 6751.
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