Settlement agreement on redundancy

A redundancy with a settlement agreement is one where the employer pays more than the statutory minimum in return for the employee waiving claims that the process was unfair, the selection was discriminatory or the consultation was inadequate. The agreement does not replace the process, because a redundancy settled under threat is a dismissal the employee can still argue was not a redundancy at all, but it does draw a line under a process the employer has run. It has to deal with the statutory payment, the enhancement and its tax treatment, the claims that can and cannot be waived, and the collective obligations where the numbers trigger them. I draft the agreement for the employer for a fixed fee of £795, delivered in three working days, with a note on the conversation; a version including negotiation with the employee's adviser is £995.

Who this is for

Employers in England and Wales making one or more employees redundant and offering enhanced terms, and employers whose redundancy process has reached the point where certainty is worth paying for.

What matters in a redundancy settlement agreement

Why a settlement agreement in a redundancy

A statutory redundancy payment is due to an employee with two years' service under section 135 of the Employment Rights Act 1996 whether or not they sign anything, so a settlement agreement is used where the employer offers more (an enhanced payment, a longer notice, benefits for a period) in return for a waiver of claims (unfair dismissal based on the pool, the selection or the consultation, discrimination in the selection, a protective award, unlawful deductions) and for the certainty of an agreed exit; the agreement should recite the redundancy as the reason, because the tax treatment of the statutory and enhanced payments depends on the reason being genuine.

The process that still has to happen first

A settlement agreement does not make an unfair redundancy fair, and an employee who signs under pressure before any consultation may argue that the agreement was not a genuine settlement of a dispute or that the protected conversation involved improper behaviour; the employer should therefore run the process (the business case, the pool, the selection criteria, the consultation meetings, the search for alternatives) far enough that the redundancy is real and the employee's claims are weak, and offer the settlement as the conclusion rather than the substitute, with the note explaining how to make the offer in a protected conversation under section 111A of the Employment Rights Act 1996 or without prejudice once the employee has raised a dispute.

The statutory payment, the enhancement and the tax

The agreement should state the statutory redundancy payment (calculated under section 162 of the Employment Rights Act 1996 by age, service and a week's pay up to the statutory limit), the enhanced payment and its basis (the employer's scheme, or a figure negotiated for this exit), notice (worked or paid in lieu, with post-employment notice pay taxed as earnings under section 402B of the Income Tax (Earnings and Pensions) Act 2003), accrued holiday, and the tax treatment: the statutory payment and a genuine enhanced redundancy payment fall within the thirty thousand pound exemption under section 403 of that Act, with the excess taxed and bearing employer's national insurance, and the agreement should allocate each sum and contain the employee's tax indemnity; the accountants confirm the treatment.

The claims the agreement waives and the ones it cannot

The agreement waives the listed claims under the conditions in section 203 of the Employment Rights Act 1996 and section 147 of the Equality Act 2010 (unfair dismissal, discrimination, unlawful deductions, breach of contract, the protective award under section 288 of the Trade Union and Labour Relations (Consolidation) Act 1992), and the employee's adviser certifies the advice; it cannot waive the statutory redundancy payment itself (which is paid in any event), claims the employee does not know about unless specifically listed, accrued pension rights, personal injury claims the employee is unaware of, or the right to make a protected disclosure under section 43J of the 1996 Act; the agreement should say what it covers and what it leaves.

Collective situations, protective awards and the thresholds

Where twenty or more redundancies are proposed at one establishment within ninety days, collective consultation under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 is required before any dismissal, and a failure gives each affected employee a protective award of up to ninety days' pay that an individual settlement agreement can waive only for that employee under section 288; the employer should not use individual settlements to avoid collective consultation, because the obligation arises on the proposal rather than on the dismissals, and the agreement should recite that collective consultation was carried out where it applied, with the Employment Rights Act 2025 changes to the threshold reflected on the timetable the regulations set.

The reference, the outplacement and the terms that ease the exit

A redundancy settlement should contain the terms that make the departure easier to accept: an agreed reference, outplacement support (which is exempt from tax under the rules for retraining and counselling where the conditions are met), the retention of benefits for a period, the treatment of a company car or equipment, an agreed announcement, the employee's right to take time off to look for work, and the employer's contribution to the adviser's fees under section 413A of the Income Tax (Earnings and Pensions) Act 2003; confidentiality and non-derogatory terms are usual but should be proportionate to a departure that is not the employee's fault, and the restrictive covenants in the contract are reaffirmed where they matter.

What it costs

Settlement agreement, £795. Drafted for your situation, with a note on how to have the conversation. Three working days.

Settlement agreement including reasonable negotiation with the employee's adviser, £995. The agreement in three working days. The negotiation then runs until the agreement is signed or it becomes clear it will not settle. Reasonable negotiation means what, in my experience, amounts to the standard back and forth on a settlement agreement. If the employee or their adviser is being unreasonable, for example by conducting themselves unprofessionally or requiring a substantial rewrite that needs material further legal advice to you, I will flag it and we will discuss how best to proceed, which may involve further fixed-fee work. That would be unusual.

Buying online forms the engagement on payment. The scope is what the settlement agreements for employers page describes, you accept the Terms of Service at checkout, and I email you within four working hours to get started. If you would rather ask something first, email me.

What you get

• A bespoke settlement agreement drafted for the exit you are dealing with
• Proper waiver of the relevant statutory claims, so the agreement does what you are paying for
• Advice on the tax treatment, including the £30,000 exemption and what falls outside it
• Confidentiality, non-derogatory statements and an agreed reference
• Reaffirmation or replacement of restrictive covenants, which is often the real value
• A short note on how to open the conversation and keep it without prejudice or protected
• One round of amendments after the employee's adviser responds

What is not included

• Advising the employee, which their own adviser must do independently for the agreement to be valid
• Tribunal representation if the matter does not settle
• Payroll processing of the settlement sums
• Handling the settlement payment, since I do not hold client money

Questions I am often asked

Can we skip the consultation if the employee signs a settlement agreement?

Not safely. An agreement signed before any process may be challenged as not a genuine settlement, and collective consultation obligations arise on the proposal. Run the process far enough that the redundancy is real, then offer the agreement as the conclusion.

Is an enhanced redundancy payment tax-free?

Within the thirty thousand pound exemption, where it is a genuine redundancy payment and not earnings, yes. Notice pay is taxed as earnings and the excess over the exemption is taxed with employer's national insurance. The agreement allocates each sum.

Can the agreement waive the statutory redundancy payment?

It cannot. The statutory payment is due regardless and is paid under the agreement. The waiver covers claims about the process, the selection and the consultation.

Related guidance and services

• Settlement agreements for employers, £795, the service this page describes
• Employment contracts and handbooks, £595
• Shareholders agreement, £995
• Redundancy policy
• Settlement agreement to exit a senior employee

This page is general guidance for businesses in England and Wales, not advice on your own circumstances. Last reviewed: October 2026. Email geoffrey@caesar.co.uk.