Posted by Caroline Doran Millett, Partner
Should you sign a settlement agreement on your redundancy?
Being made redundant can be a very challenging time. But what is the best approach to take? Signing a settlement agreement may be the best option for you, however there are a few thing that you need to know first.
If you are asked to sign a Settlement Agreement (SA) on your redundancy this indicates that your employer is willing to pay you extra money, above your basic statutory redundancy or contractual sums, on your exit.
Your basic statutory redundancy payment can be calculated online. Once you sign a SA you will not be able to bring any employment related claims now or in the future against your employer; you will have waived all your employment rights in exchange for the extra money your employer is offering you. There are certain limited exceptions.
The SA is only legally binding if you receive independent legal advice from a qualified legal advisor. Usually the employer pays a legal fee contribution so that your advice on the document is free. As a general rule, non-contractual compensation of up to £30,000 for loss of employment can be paid tax free.
The importance of negotiation
You do not have to sign the SA but as you also will not receive the enhanced monies most people are willing to agree to additional legal obligations in exchange for extra money.
Often there are negotiations around the financial package. For some of our clients controlling the message on their departure is important, such as personalised internal and external announcements or references where possible. Others want to be on garden leave, rather than paid in lieu, as this may provide an additional period to look for a new role while still technically an employee. Some of our clients want post-termination restrictions waived or reduced to help them find a new role sooner. There are often important professional reasons why clients seek to amend the standard SA.
The SA should include the payment to you of any contractual entitlements such as accrued holiday pay or notice. The SA will often place obligations on you including returning company property and confidential documents, as well keeping the SA terms and your employer’s affairs strictly confidential. As any offer can be withdrawn at any time, you must ensure you sign within any deadlines or the Settlement Agreement offer may be withdrawn and you will not receive any additional or ex-gratia amounts.
Considerations for breaching
If you breach the SA then you may not get the enhanced money or may have to return payments already made, but your employer will still hold you to your other obligations, so it is important you understand what you are signing up to with the SA.
Please speak to Caroline Doran Millett or your contact in the @Royds Withy King employment team if you have any queries on redundancy or Settlement Agreements.
@Legal 500 (2019) describes Royds Withy King’s London Employment Team as a ‘responsive, thorough and highly tactical team’. Caroline comes recommended by the Legal 500 UK, the clients’ guide to the best UK law firms, and is described over the years as “completely unflappable… and genuinely cares about her clients”, “excellent” and is a recommended lawyer.
Legal 500 (2019) describes Royds Withy King’s London Employment Team as a ‘responsive, thorough and highly tactical team’. Caroline comes recommended by the Legal 500 UK, the clients’ guide to the best UK law firms, and is described over the years as “completely unflappable… and genuinely cares about her clients”, “excellent” and is a recommended lawyer.
Contact a member of the employment team immediately if you have any questions around redundancies or settlement agreements.
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