Redundancy vs settlement agreement: what's the difference?

These two are often confused, but they're not the same thing. And understanding the difference matters if you're being offered one instead of the other.

What is redundancy, in short?

Redundancy is a specific, legally-defined reason for dismissal. Your role genuinely no longer exists. If you're made redundant through the standard process, you're entitled to statutory redundancy pay (based on age, length of service and weekly pay), notice, and a fair process. But you don't automatically give up your right to bring claims like unfair dismissal.

What is a settlement agreement, in short?

A settlement agreement is a separate contract that can be used alongside redundancy, or completely independently of it. In exchange for a payment. Which sits on top of anything you're already owed. You agree to waive your right to bring most employment claims. It requires independent legal advice to be valid.

How do redundancy and settlement agreements usually combine?

Most commonly, an employer offers a settlement agreement as part of, or after, a redundancy situation. The settlement figure typically includes your statutory redundancy pay plus an additional negotiated sum, in exchange for you agreeing not to challenge the process. You should still receive your full statutory (and any contractual) redundancy entitlement regardless. The settlement adds to it, rather than replacing it, unless your agreement clearly states otherwise.

Which is "better" for you: redundancy or a settlement agreement?

Standard redundancy alone keeps your right to bring a claim if you think the process was unfair. Useful if there are real weaknesses in how it was run
A settlement agreement usually pays more up front, in exchange for certainty and giving up that right. Useful if you'd rather have the money now than pursue an uncertain claim

The right answer depends entirely on the strength of your position, which is exactly what independent legal advice is for. Not something to guess at from a general guide.

Offered a settlement during redundancy? See our dedicated redundancy settlement agreement guidance, or send us your agreement for a free review.

Frequently asked questions

Do I lose my redundancy pay if I sign a settlement agreement?

No, in almost all cases your statutory and contractual redundancy pay sits on top of the settlement, not instead of it. Always check your specific agreement’s breakdown to confirm this.

Can I be made redundant without a settlement agreement?

Yes. A standard redundancy process doesn’t require a settlement agreement at all. A settlement is a separate, optional step some employers add to gain certainty and close down the risk of a claim.

Is a settlement agreement always worth more than standard redundancy?

Often, but not always. It depends on the extra amount offered versus what you might realistically achieve by not signing. This is exactly the kind of calculation a solicitor helps with on your specific facts.

Wherever you are in the process, help understanding your settlement agreement is here to help.