Voluntary redundancy is a term used to describe compromise agreements between employers and employees when an organization must downsize or eliminate portions of its workforce. When an employee role becomes redundant, it is no longer critical or useful to an organization's operations. In situations where employment laws or social expectations inhibit an organization's ability to terminate unnecessary employees without just cause or proper procedure, voluntary redundancy offers an alternative. The employer and the employee reach an agreement under voluntary redundancy whereby the employee, of his own free will, resigns from a position in exchange for a financial incentive or settlement.
Employment laws vary greatly between countries, and even between jurisdictions within countries. As such, the use of voluntary redundancy programs and severance package offerings for redundant employees varies. Typically, the more restrictive a jurisdiction's employment laws in regards to termination, the more popular voluntary redundancy programs are in that region. In European countries such as Germany and the United Kingdom, complex employment law requirements make corporate restructuring more difficult in terms of eliminating positions. As an alternative to extensive notices, consultations with employee representatives, and other precursors to a layoff, many organizations instead opt for private agreements with employees who voluntary leave the company.
Most states in the US have “at will” employment laws, meaning both the employer and the employee retain the right to terminate an employment arrangement for any reason. Such arrangements allow US organizations to downsize, restructure, or completely eliminate employee positions as needed to meet organizational objectives. Few US companies or human resource management firms offer voluntary redundancy programs to employees subject to layoff or other redundant terminations. Only in cases where union contracts, individual employment contracts, or policies published in employee handbooks specifically limit the terms under which employees are subject to termination do companies in the US offer voluntary redundancy programs.
Aside from legal requirements that make voluntary redundancy programs popular, there is a social responsibility to employees to consider during corporate restructuring. Faced with the possibility of a layoff, employees near retirement age or with promising career prospects are often willing to resign voluntarily to help save the jobs of coworkers. Keeping such employees and mindsets in mind, many organizations will offer voluntary redundancy agreements in an effort to minimize the social impact and public perception of restructuring efforts. Socially responsible employers who choose to offer voluntary redundancy agreements to employees can often mitigate negative response to layoffs by including retraining, financial incentives, and relocation assistance into an employee's severance package.