10 top tips for negotiating a redundancy settlement agreement
- 20 December 2024
- Employment
In today’s financial market, redundancies are unfortunately becoming a reality for many businesses and employees. We are seeing a marked rise in settlement agreements being offered, as employers attempt to navigate fair and mutually beneficial terms for redundancy. However, the process is often fraught with difficulties, and a misstep in negotiations, or in the drafting of the settlement agreement can cause the process to quickly unravel.
With that in mind, we have set out our top 10 tips for drafting and negotiating settlement agreements, to help both employers and employees who find themselves in this situation.
It is perhaps unsurprising that this would be our first tip, but we really do recommend that anyone, employer or employee, who is going through a redundancy situation, or in discussions regarding a settlement agreement obtains legal advice early on. When mixed up in tense negotiations, it can be very difficult to see the wood for the trees, and to know when there is a genuinely good offer on the table. Hard feelings can muddy the waters and sometimes it takes an outside perspective to offer insight and move negotiations forward.
It is also good to seek the advice early, before concessions have been made that may not be in the parties’ best interest. For many parties in this situation, it is not something that they have had a lot of experience dealing with, whereas a solicitor should be well versed in what a good deal looks like for the employer or the employee, and should be au fait with best practice to negotiate a better deal. It is difficult to roll back a situation that has advanced too far, where cards have already been laid on the table, so engaging legal expertise early can make sure that the parties’ rights and interests are protected.
It is worth also noting that most settlement agreements include an employer contribution for the employee getting advice on the agreement. With costs rising for everyone, including average rates for solicitors, we recommend that employers ensure that they are offering a sensible rate for this, so that the employee will actually get proper advice and avoid potential unnecessary costs down the line.
As above, if you have sought legal advice early, your solicitor should be able to explain this to you properly, and can save you the time and the risk of misunderstandings.
Open and honest communication from both parties fosters trust and allows both to express their concerns, facilitating smoother negotiations. Your solicitor can help ensure that communications remain professional and calm, and can help provide a buffer where emotions are running high. .
Whether you are the employer or the employee, you should enter any meeting about a settlement agreement well prepared, knowing your available options. We always encourage clients to think early about what their top and bottom line is. That can be difficult if you have never been in this situation before.
For employees, it can be tempting to think about cases you’ve heard about where people received huge pay-outs from employers, or colleagues who you know got a lot. However, it is important to be aware of your specific circumstances. Think about how long you’ve been with the employer, what your role was, how long it might take you to get another job, and most importantly, try to be realistic. You will only end up disappointed if you go into a discussion with a completely unrealistic goal. One of the benefits of talking to a solicitor early, is that we can help to guide you on what is actually realistic in your circumstances.
It is worth also noting that most settlement agreements include an employer contribution for the employee getting advice on the agreement.
We often see cases where parties think they have agreement because they agree on the headline figure. However, when the detailed settlement document if put in front of them, containing many of the standard precedent clauses, they realise there are other terms that they are not willing to agree to. This can quickly lead to a breakdown in negotiations, so if you know there is something that is important to you, make sure it is included in the offer at an early stage. For example, as an employee you might want to agree a waiver of the restrictive covenants in your employment contract so you can find a new job more easily. As an employer, you might want to agree an announcement to clients, so that you have some control over the narrative of the situation.
When you are negotiating terms, make sure to ask questions and seek clarification if needed. It is important not to make assumptions about what is meant. If the other party hasn’t mentioned something, you should ensure that you ask the question early so it is not a surprise later that can derail the settlement negotiations.
A good example of this is holiday pay. Usually, an employee will receive a payment for all accrued and unused holiday along with their termination payment. However, this may not happen if they have taken more than their entitlement at the time of settlement. Or if they are going to be placed on garden leave.
It is recommended that you make sure you document every stage of the process too. If you have a meeting about the potential settlement, or a protected conversation, then ensure that someone is making a note which will be shared with the parties afterwards. This can be useful for resolving disputes in the future.
It is really important that if you are agreeing to a settlement, the payment is made on time. Employers need to ensure that they know when the deadline is, and that this information is passed to the finance team in the company. It is a good idea to ensure that a confirmation email is sent by the person responsible for paying to whomever negotiated and signed the agreement on behalf of the company.
Likewise, an employee should make sure they know when they should expect the payment and exactly how much they are going to be paid, so that they can be prepared to raise it quickly if they think there is a mistake.
We hope that these tips are useful to those in this difficult situation, and we encourage you to reach out to our redundancy solicitors if you need any advice, either as an employer or employee, to make the process as easy and hassle free as possible. For more in-depth guidance on redundancy and settlement agreements, be sure to take a look at our guide and have a listen to our podcast.
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Disclaimer
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.