Using settlement agreements in a redundancy programme

Consultation comes first

A settlement agreement settles claims. It does not remove the obligation to run a lawful redundancy process. For each employee you still need a genuine redundancy situation, a fair pool and selection method, individual consultation and a search for alternatives.

Where you propose to dismiss 20 or more employees at one establishment within 90 days, you must also consult collectively with a recognised union or elected representatives:

Failure can lead to a protective award of up to 180 days' gross pay per affected employee, doubled from 90 days in April 2026. Failure to file form HR1 is a criminal offence.

Where settlement agreements fit

• Voluntary exits. Offering enhanced terms to volunteers, documented by settlement agreement, can reduce or avoid compulsory redundancies.
• Enhanced compulsory terms. Paying above statutory in return for a waiver at the end of consultation.
• Higher-risk individuals. Employees on family leave, with health conditions or with open grievances, where the risk of a claim justifies individual terms.

Designing the package

Decide the enhancement formula once and apply it consistently. Common approaches are a multiple of statutory redundancy pay, statutory weeks at actual instead of capped pay, or a number of weeks' pay per year of service.

Only the enhancement can be conditional on signing. Statutory redundancy pay, notice and holiday pay must be paid regardless. Check whether a contractual scheme or an established custom already entitles employees to enhanced terms. If so, that is not available as consideration for the waiver.

Age and length of service criteria can be indirectly discriminatory. Schemes that mirror the statutory formula have a specific exemption under the Equality Act. Others need to be justified.

Running it at scale

1. Prepare a templateWith a schedule for individual figures. Use the drafting checklist.
2. Calculate each packageService dates, age, a week's pay, notice entitlement, holiday and post-employment notice pay.
3. Arrange access to adviceMany employers line up one or more independent firms able to advise a group quickly, at a fixed fee per employee. Make clear employees can go elsewhere.
4. Set the fee contributionA flat sum plus VAT per employee, paid direct to the adviser.
5. Issue agreements after consultation concludesNot before. An agreement sent on day one suggests the outcome was fixed.
6. Allow timeAt least 10 calendar days for each employee, longer for large groups or holiday periods.
7. Track signatures and paymentsAgainst payroll cut-offs.

Pitfalls

• Treating a signed agreement as curing a failure to consult collectively. Whether a protective award claim can be waived in an individual settlement agreement is legally uncertain. Do not rely on it.
• Pressure through deadlines. "Sign by Friday or get statutory only" risks being undue pressure.
• Employees on maternity or other family leave. They have priority for suitable alternative vacancies. Overlooking this is automatically unfair.
• TUPE. Waivers of rights arising from a transfer need particular care.
• Leaving dates around 1 January 2027. Employees with six months' service are due to gain unfair dismissal rights for dismissals from that date.
• Tax errors repeated across the group. One mistake in the post-employment notice pay method is multiplied by every agreement.

Communication

Explain to employees, in plain terms, what the agreement is, that advice is required and paid for, what they receive either way and what the enhancement is for. Point them to independent information. An employee who understands the offer signs sooner and is less likely to dispute it later. Our employee guide to redundancy and settlement agreements is written for that purpose.

About this guide. This page is general information, not legal advice, and reflects the law and published government plans on the date shown above. Frederick George is a legal referral service, not a law firm. For advice on your own circumstances we will introduce you to an SRA-regulated solicitor.