Settlement agreements and redundancy

If the offer has been described to you as a “severance package”, note that the word has no meaning in UK law — it is usually statutory redundancy pay plus notice plus some compensation, bundled into one figure.

A redundancy is a definition, not a decision

The most useful thing to know about redundancy is that the word has a statutory meaning, and it is narrower than the way employers use it.

Read what that requires. The dismissal has to be wholly or mainly attributable to one of three things: the employer stopping the business, stopping it in the place where you worked, or the requirements of the business for employees to do work of a particular kind having ceased or diminished.

A great many dismissals described as redundancies do not fit. If the work is still there and someone else is doing it, the requirement for employees to do work of that kind has not diminished. If the role is renamed and re-advertised, the same problem arises. If a team of six becomes a team of five and you were selected, that probably is a redundancy — but the selection has to have been fair, which is a separate question.

None of that makes a settlement offer a bad one. It changes what you are being asked to give up.

What you are owed before anybody negotiates anything

Three amounts are fixed by statute or by your contract and are due whether you sign an agreement or not. Establish them first, because they are the baseline every other number should be measured against.

• Statutory redundancy pay, if the dismissal is a redundancy and you have at least 2 years’ service. Age-weighted, capped at £751 a week for 2026/27, service counted to a maximum of 20 years, overall maximum £22,530.
• Notice, under s.86(1) of the Employment Rights Act 1996 or your contract if it gives more — one week per complete year to a ceiling of twelve.
• Accrued untaken holiday, to the termination date.

The calculator works all three out exactly and separates them from the part that is actually being negotiated.

What the agreement is really buying

Here is where the caseload data is more useful than any amount of explanation. These are the complaints the employment tribunal received in April to June 2026, alongside how many it disposed of and how many were still open at the end of the quarter.

Redundancy pay is one of the smallest categories in the table. Unfair dismissal is the largest by a distance. That is not because redundancy is rare — it is because the redundancy calculation is arithmetic, and arithmetic does not produce a tribunal claim. What produces a claim is the argument that the redundancy was not genuine, or that the selection or consultation was not fair, and that argument is an unfair dismissal claim.

So when an employer offers a settlement in a redundancy, the thing they are buying is almost never the redundancy payment. It is the possibility that you say the redundancy was a dressed-up dismissal. The size of the offer should be a function of how likely that argument is to succeed and what it would cost them to defend — which is exactly what the negotiation is about.

Consultation, and why you rarely see a claim about it

There are two consultation duties and they behave very differently.

Individual consultation is part of what makes a redundancy dismissal fair. Skip it and the dismissal is likely unfair, which shows up as an unfair dismissal claim rather than as a consultation claim.

Collective consultation applies where enough employees are affected, and has its own remedy. Notice how rarely it appears on its own: only 94 complaints in the quarter, against 5,822 for unfair dismissal. It is real and it is usually argued as part of something larger.

The practical point for you is narrow. If you were told about the redundancy and dismissed in the same conversation, that is worth putting in front of a solicitor before you sign anything, because it goes directly to the claim the agreement is asking you to waive.

If the “redundancy” does not meet the s.139 definition, what you may have instead is an ordinary dismissal — or, if you were pushed into resigning, a constructive dismissal, which works differently and is worth understanding before you hand in anything.

Voluntary redundancy is still a dismissal

Volunteering does not make it a resignation. You are still dismissed, the statutory payment is still due if you qualify, and the agreement still has to meet all six conditions in s.203(3) to be worth anything to the employer.

What volunteering does do is weaken the unfair dismissal argument, because it is hard to say you were unfairly selected for something you asked for. Since that argument is what the ex gratia element is priced against, voluntary schemes usually carry a smaller one — and a fixed, published formula that is the same for everyone who volunteers.

That is a reasonable trade rather than a trick. It is worth understanding before you decide, because it is one of the few moments in this process where you choose which claim you are giving up.

Enhanced schemes: yours already, or part of the offer?

Many employers have a redundancy scheme that pays more than the statute. The question to ask before you value an offer is whether that enhancement is contractual or discretionary.

If it is contractual — written into your contract, or established by custom and practice — you are entitled to it regardless, and an offer that presents it as compensation is presenting your own money as a concession. If it is genuinely discretionary, it is part of the negotiation.

It is a two-sentence question and firms that do this work will answer it from the documents in minutes. What that advice costs, and who pays for it.

Where the tax line falls in a redundancy

Statutory redundancy pay and any ex gratia compensation sit in Part 2 and count towards the £30,000 threshold. Notice pay, holiday pay and unpaid wages sit in Part 1 and are taxed as earnings in full.

The trap is the same one as everywhere else on this site: relabelling notice pay as compensation does not move it across the line, because the post-employment notice pay rules calculate the notice element arithmetically from your contract and your dates. How that calculation works and why the labels do not decide it.

One redundancy-specific point. Because statutory redundancy pay counts towards the threshold rather than sitting outside it, a long-service worker can find a meaningful part of the £30,000 already used up by the statutory payment before any compensation is added. That is worth modelling before agreeing a headline figure.

Common questions