What is the difference between Redundancy and a Settlement Agreement?

Date Added 10.10.22

Our Employment Law and HR team find they regularly have to explain the differences between redundancy and a settlement agreement. Below they outline these.


Redundancy is one of the five potentially fair reasons to dismiss an employee. It refers to a situation where an employer closes their business, or place of work, or where there is a reduction of work of a particular kind.

Redundancies follow a formulated process, with employers required to inform and consult with employees throughout. Care must be taken when following this process, as unfair procedures can give rise to unfair dismissal claims. If 20 or more employees are being made redundant within a 90-day period, the employer must enter into a collective consultation and provide advanced notice to the Secretary of State. Special rules apply where employees are pregnant or on a form of parental leave, for instance adoption, maternity or shared parental leave.

Redundancy typically results in a statutory redundancy payment for employees with two or more years of continuous service.

Employees who have been made redundant will usually have the right to appeal against the redundancy, and may be able to bring a claim for unfair dismissal against their former employer.

Redundancy can be a complex matter and, as such, it is important to ensure that the dismissal is due to a genuine redundancy and that a full, fair process has been followed.

Settlement Agreement

A Settlement agreement, once entered into, is a contractually binding agreement to settle a matter between an employee and employer. Settlement Agreements are often associated with terminating employment and usually require financial consideration.

The term ‘Without prejudice and subject to contract’ is closely associated with the use of Settlement Agreements. Without prejudice refers to the confidential nature of the agreement, ensuring that the matter remains private and cannot be disclosed in a court, were used appropriately.

It is a requirement for the employee to obtain legal advice from a qualified legal professional in relation to the terms and effect of the agreement. Without this advice the settlement agreement is not legally binding and some or all of the terms may be void. As such, employers typically contribute towards the legal fees of the employee to ensure that the required legal advice is obtained. Employer contributions vary between organisations.

Talk to Tollers

We work with businesses to carry out a fair and legal redundancy process. Our advice is not only straightforward and easy to follow, but is also practical and tailored to our clients circumstances.

We work with employers looking for advice or help in drafting a settlement agreement or with employees looking for independent legal advice.  Our team is experienced in drafting and negotiating settlement arrangements and assisting to ensure informed decisions are made.

If you would like advice or guidance on either redundancy or a settlement agreement, Get in touch with our experienced employment law solicitors, for advice you can count on. We’re here for you.


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