Redundancy and settlement agreements: what to check before you sign

If you are offered a settlement agreement as part of a redundancy, check four things before you sign:

1. Your basic entitlements: statutory redundancy pay, notice pay and accrued holiday.
2. The enhancement: whether the extra money is fair value for the claims you are giving up.
3. Tax: how each payment will be taxed.
4. The other terms: confidentiality, references, restrictive covenants and when you will be paid.

You will need independent legal advice before the agreement is binding, and your employer usually pays for it. This guide applies to employees in England and Wales.

Why a settlement agreement in a redundancy?

A redundancy can be challenged, for example if the selection was unfair, the consultation inadequate or the real reason discriminatory. A settlement agreement gives the employer certainty that no claim will follow. In return, employers often offer more than the statutory minimum, sometimes called an enhanced redundancy payment or ex gratia payment.

Statutory redundancy pay is a legal right if you qualify. You should not have to give up your claims just to receive it. The question is whether the extra on offer is worth what you are giving up.

1. Check your basic entitlements

Statutory redundancy pay

You usually qualify if you are an employee with at least two years' continuous service. The amount depends on your age, length of service (up to 20 years) and weekly pay:

• half a week's pay for each full year of service under age 22;
• one week's pay for each full year aged 22 to 40;
• one and a half weeks' pay for each full year aged 41 or over.

For redundancies on or after 6 April 2026, weekly pay is capped at £751, so the maximum statutory redundancy payment is £22,530. Your contract may give you more.

Notice pay

You are entitled to your contractual notice or statutory notice, whichever is longer. Statutory notice is one week per complete year of service, up to 12 weeks, after one month's employment. If you will not work your notice, check that it is being paid.

Holiday and other pay

Check that the agreement pays accrued but untaken holiday, salary to your leaving date, and any bonus or commission you have earned.

2. Is the enhancement fair value?

This depends on what claims you might have and how strong they are. Questions your adviser will ask include:

• Was there a genuine redundancy situation, or is redundancy being used to cover another reason?
• How were people selected, and were the criteria applied fairly?
• Was there meaningful consultation, and were alternative roles offered?
• Is there any sign of discrimination, for example relating to pregnancy, maternity leave, age, disability or sex?
• Have you raised a grievance or made a protected disclosure (whistleblowing)?

Collective redundancies

If your employer proposes to make 20 or more employees redundant at one establishment within 90 days, it must consult collectively: at least 30 days before the first dismissal, or 45 days where 100 or more are proposed. If it fails to do so, a tribunal can make a protective award. The maximum protective award doubled on 6 April 2026. A planned change, scheduled for April 2027, would also count redundancies across the whole organisation.

Unfair dismissal qualifying period

At present you generally need two years' service to claim ordinary unfair dismissal. The government plans to cut this to six months, and to remove the cap on the compensatory award, from 1 January 2027. Exactly who benefits will depend on the rules that bring the change into force, so check the position when you are advised.

3. Tax

In general:

• statutory redundancy pay and genuine non-contractual compensation are free of income tax up to a combined total of £30,000;
• pay for notice you do not work is taxed as earnings, even if it is not described as notice pay;
• salary, holiday pay and contractual bonus are taxed as normal earnings; and
• your employer's contribution to your legal fees is tax-free if paid directly to your solicitor under the agreement.

See settlement agreement tax for more detail.

4. The other terms

• Payment date: when you will be paid, and whether payment depends on returning the signed agreement by a deadline.
• Reference: whether an agreed reference is attached.
• Confidentiality and non-disparagement: what you can say, and to whom.
• Restrictive covenants: whether existing restrictions are repeated or extended.
• Warranties: for example that you have not found another job or do not know of any claims. These matter, because breaching them can mean repaying money.
• Shares, bonus and pension: what happens to them on leaving.

Your timetable

The Acas Code says you should usually have at least 10 calendar days to consider the written terms and take advice. Tribunal time limits keep running meanwhile. Since 1 October 2026, most claims must be brought within six months, usually after Acas early conciliation.

Next step

I advise employees on redundancy settlement agreements online, anywhere in England and Wales, and in most cases the fee is paid by the employer. See the settlement agreement service page, how the process works and who pays, or send me your employer's name and your deadline through the enquiry form.