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Redundancy and Settlement Agreements

Redundancy is one of the potentially fair reasons for dismissal.

An employer may seek volunteers for redundancy when it decides that it needs to make employees redundant, this is often the case when an employer is seeking to make many redundancies.

Some employers may offer a redundancy package and a settlement agreement to entice employees to volunteer. Other employers may offer enhanced packages to those who are compulsory selected for redundancy subject to entering into a settlement agreement.

If you are in a redundancy situation and have been offered a settlement agreement you should check the following: –

1. What is your length of service?

To be entitled to a statutory redundancy payment you need to be continuously employed for 2 years. It will generally be more difficult to negotiate a higher redundancy package if you have less than 2 years’ service.

2. Are you being offered the statutory redundancy payment?

At a minimum you should be paid the statutory redundancy payment which is:

  • 5 weeks’ pay for each full year of employment after your 41st birthday
  • A week’s pay for each full year of employment after your 22nd birthday
  • Half a week’s pay for each full year of employment up to your 22nd birthday


3. Has notice and annual leave been accounted for?
You should either work your contractual notice or be paid in lieu of your contractual notice, or the balance if you are working some of your notice. Notice pay is always taxable.
You should also be able to use your accrued annual leave or be paid for any accrued but untaken annual leave.
Your employer can insist on employees working their notice and annual leave although many employers will prefer to pay in lieu.

4. What other financial consideration is there?

The employer is legally obliged to pay the above sums so for you to enter into a settlement agreement (where you will most likely be agreeing to not pursue any claims whatsoever against your employer along with agreeing to confidentiality requirements) it is preferable for there to be an additional financial benefit to you. This should be expressed in the settlement agreement and may be phrased as a ‘Termination Payment’ ‘Settlement Sum’ or ‘ex-gratia payment’. If the sum is £30,000 or less then it can usually be paid free of tax.
There is no right or wrong sum as such. It will largely depend upon whether the sum is acceptable to you although you may wish to consider whether you may have any claims such as unfair dismissal or discrimination. Some employers may be willing to negotiate a higher settlement sum.

5. Is your employer offering a contribution towards legal fees?
An employer is not legally required to offer a contribution towards legal fees, but it is considered good practice to do so. Most employers will offer in the region of £500 – £1,000 + VAT so that employees can obtain detailed advice.

How we can help you

We offer a full virtual service and are used to working to tight deadlines. We try to work to the budget set by the employer and, where possible, will invoice them directly. Please get in touch to speak to one of our friendly solicitors on 01483 303636 or email to see how we can help you.