The short answer
Redundancy and a settlement agreement are not the same. Redundancy is a potentially fair reason for dismissal where the employer’s need for employees to carry out work of a particular kind has ceased or diminished, or the business or workplace closes. A settlement agreement is a voluntary contract under which an employee or worker gives up specified claims in return for agreed terms.
They can be used together. An employer may run a redundancy process and offer a settlement agreement to document an agreed exit, enhanced payment, reference and waiver of claims.
What is redundancy?
A fair redundancy exercise will usually require the employer to identify a genuine redundancy situation, warn and consult affected employees, use an appropriate pool and fair criteria where selection is required, consider ways to avoid dismissal and suitable alternative employment, give proper notice and pay the sums due.
Where collective consultation rules apply, additional statutory duties arise. Individual consultation remains important regardless of collective requirements.
An employee dismissed for redundancy may be entitled to:
- statutory redundancy pay, normally after two years’ qualifying service;
- any enhanced contractual redundancy payment;
- statutory or contractual notice;
- accrued holiday and other contractual sums; and
- a fair process, subject to the applicable legal requirements.
For redundancies on or after 6 April 2026, the current weekly-pay cap for statutory redundancy calculations is £751 and the maximum statutory payment is £22,530. These figures change regularly and should be reviewed before publication and at least annually.
What is a settlement agreement?
A settlement agreement can end employment on agreed terms, settle a workplace dispute or record an exit following redundancy, performance concerns or another process. It is voluntary: the employee cannot be compelled to sign.
For the statutory waiver to be valid, the agreement must be in writing, cover particular complaints or proceedings and satisfy the independent-advice conditions. The employee or worker must obtain advice from an appropriately qualified, independent and insured adviser.
The principal differences
Legal function: Redundancy is a reason and process for dismissal. A settlement agreement records agreed terms and waives specified claims.
Consent: An employer may dismiss for redundancy after a lawful process even without agreement. A settlement agreement requires consent.
Independent advice: It is not a condition of redundancy. It is required for a statutory settlement agreement.
Claims: Redundancy alone does not waive claims. A valid settlement agreement can prevent the identified claims from being pursued.
Payments: Redundancy involves statutory and contractual entitlements. A settlement may add compensation and negotiated benefits.
Confidentiality: It is not automatic in redundancy. Settlement agreements commonly include confidentiality, subject to lawful exceptions.
Can an agreement be offered during redundancy?
Yes. The agreement may cover the termination date, notice, redundancy and compensation payments, holiday, benefits, reference, confidentiality and restrictions. Its offer does not automatically prove the redundancy is unfair, and it does not cure a defective process by itself.
Until a valid agreement is signed, the employer should continue to act fairly and the employee retains legal rights. Acas states that at least 10 calendar days should generally be allowed to consider formal written terms and obtain advice, unless the parties agree otherwise.
How do the payments differ?
Redundancy pay is based on statutory rules or an enhanced contractual scheme. A settlement agreement may combine redundancy pay with salary, notice, holiday, bonus, a compensation payment and legal fees.
The tax treatment follows the nature of each payment, not its label. Salary, holiday, bonus and notice pay are generally taxable. Statutory redundancy and qualifying termination payments may fall within the combined £30,000 exemption, subject to detailed rules.
What if the employee refuses to sign?
The employer may continue a genuine redundancy process. Any eventual dismissal must still comply with the applicable requirements. The employee should continue participating in consultation, consider alternatives and protect tribunal deadlines rather than assuming negotiations pause them.
What should an employee compare?
Compare the proposed package with the likely result if the offer is rejected. Consider the genuineness of redundancy, consultation and selection, notice and redundancy entitlements, possible discrimination or whistleblowing issues, reference, restrictions, benefits, tax and payment timing.
Frequently asked questions
Is voluntary redundancy a settlement agreement?
No. Voluntary redundancy remains redundancy, although an agreement may document its terms and waive claims.
Does signing remove statutory redundancy pay?
Not normally where redundancy is the agreed reason and entitlement exists, but the agreement must identify each payment clearly.
Can the settlement be negotiated?
Yes. Money, termination date, benefits, reference, confidentiality, restrictions and legal costs may all be discussed.
Does the employer have to pay the legal fee?
Employers commonly contribute, but there is no general duty to pay every cost of advice or negotiation.
Speak to The Legal Practice Solicitors
Our Employment Law team can explain a settlement agreement, check the payment and waiver provisions and advise on proposed amendments or negotiation where appropriate. We also advise employers on drafting, process and risk.
Telephone: 0208 903 7017
Email: employmentlaw@thelegalpractice.co.uk
Office: 122-126 Wembley Park Drive, Wembley Park, London HA9 8HP
Disclaimer
This article is provided for general information only and does not constitute legal or tax advice or create a solicitor-client relationship. Employment law and taxation is fact-specific and may change. Obtain advice on the individual facts before acting. The law referred to is the law of England and Wales and is stated as at 26 August 2026.
