At Risk of Redundancy? What You Need to Know Before You Sign a Settlement Agreement

Being told you are at risk of redundancy can be unsettling, especially if your employer then asks you to sign a settlement agreement quickly. Before signing, you need to understand what you are being paid, what rights you are waiving and whether the offer reflects your legal position.

This guide explains what to check in a redundancy settlement agreement, when you may be able to negotiate and why independent legal advice matters.

What you need to know before signing a settlement agreement.

Being told that you are “at risk of redundancy” can be unsettling, especially if your employer then presents you with a settlement agreement and asks you to sign it quickly. You may be worried about losing your income, protecting your reputation, securing a reference, understanding your redundancy pay and making sure you do not accidentally give up valuable rights.

However, being at risk of redundancy does not mean your employer has already made a final or lawful decision. It usually means your role is being considered as part of a restructure, cost-saving exercise or wider business change. In a fair process, your employer may still need to consult properly, consider alternatives and apply fair selection criteria before any decision is confirmed.

A settlement agreement can be a sensible way to bring employment to an end on agreed terms. It can provide certainty, compensation, an agreed reference and a cleaner exit. But it is also a legally binding contract. Once signed, it will usually prevent you from bringing employment claims against your employer about the matters covered by the agreement.

Before you sign anything, it is important to understand what you are being offered, what you may be giving up and whether the package reflects the real position.

What does “at risk of redundancy” mean?

Being at risk is not the same as being dismissed. If your employer says you are at risk of redundancy, it usually means your role may be removed or reduced, but no final decision should yet have been made. A genuine redundancy process should involve consultation before any decision is confirmed, rather than consultation after the outcome has already been decided.

Redundancy normally arises where a business closes, a workplace closes, or the employer has a reduced need for employees to do work of a particular kind. In simple terms, the business says it no longer needs the role in the same way, at the same location or in the same numbers.

Sometimes, however, employers use redundancy language when the real reason for termination is something else. That does not automatically mean the redundancy is unlawful, but it does mean the background should be reviewed carefully before you agree to settle your claims.

Why has my employer given me a settlement agreement?

A settlement agreement is designed to achieve a clean break. It is a formal legal contract between you and your employer. It usually records the terms on which your employment will end and confirms that, in exchange for certain payments or benefits, you agree not to bring specified legal claims.

Employers often use settlement agreements in redundancy situations because they want certainty. They may want to avoid a dispute about the process, reduce the risk of an employment tribunal claim, protect confidential information and bring matters to a swift conclusion.

For employees, a settlement agreement can also be useful. It may provide an enhanced payment, an agreed reference, payment for notice and holiday, outplacement support, continued benefits for a period or agreed wording around your departure.

The real question is whether the agreement is fair and whether it properly reflects the legal and practical risks on both sides.

Do I need a settlement agreement?

No. Not all redundancies involve a settlement agreement and many employees go through a standard redundancy process and, if dismissed, simply receive their statutory and contractual entitlements without signing any separate agreement.

Settlement agreements are more common where the employer wants certainty, wants to avoid arguments about the process, or wants to agree exit terms that go beyond basic statutory or contractual entitlements. They are often used where the employer is offering something extra in return for you waiving potential claims and agreeing a managed exit.

Can I refuse to sign?

Yes, a settlement agreement is voluntary. Your employer cannot usually force you to sign one. If you refuse, the employer may continue with the redundancy process and, if it still considers redundancy appropriate, may dismiss you by reason of redundancy.

That does not necessarily mean refusing is the wrong decision. In some cases, the offer may be too low, the process may be flawed, alternative roles may have been overlooked, or you may have potential claims that have not been reflected in the compensation package. In other cases, signing may be the most practical option, provided the terms are improved or clarified.

Before deciding, you should compare the proposed package against:

• your legal entitlements;
• your contractual rights;
• the strength of any potential claims; and
• your wider commercial priorities.

What should a fair redundancy process involve?

Consultation should be genuine and meaningful. A fair redundancy process normally involves consultation before a final decision is made. That means discussing the proposal with affected employees, explaining the business reasons, listening to responses, considering alternatives and allowing employees to challenge the proposal or suggest ways to avoid dismissal.

In an individual redundancy consultation, you would usually expect your employer to explain:

• why your role is at risk;
• what the proposed new structure looks like;
• whether a selection pool applies;
• what selection criteria are being used;
• what alternative roles are available; and
• what payments you may receive if dismissed.

Selection must usually be fair and objective.

Where more than one employee is doing similar work, your employer may need to identify a selection pool. That is the group from which redundancies may be made. The criteria used should usually be as objective as possible and should be applied fairly.

Employers often use criteria such as: 

• skills and qualifications;
• performance;
• disciplinary record;
• attendance;
• experience; and 
• business needs.

However, the criteria must be applied consistently and must not unlawfully discriminate. For example, absence scoring can become problematic if disability-related absence or maternity-related absence is treated unfairly.

Alternative employment should also be considered. 

A fair redundancy process should usually involve looking for suitable alternative roles. Your employer should not simply assume there is no alternative. It should consider vacancies, redeployment, reduced hours, different roles and retraining where appropriate.

What should I check before signing?

The first step is separating legal entitlements from extra compensation. One of the most common mistakes is to focus only on the headline settlement figure. You need to understand what that figure actually includes.

Your employer may include notice pay, holiday pay or salary arrears within the total package. Those sums may not be an additional incentive to settle, because they may already be payable in any event.

Before signing, check the following carefully:

• your notice pay and termination date;
• whether you are required to work notice, placed on garden leave or paid in lieu of notice;
• accrued but untaken holiday;
• redundancy pay;
• any bonus or commission entitlement;
• pension contributions and benefits; and
• any ex-gratia or termination payment.

It is also worth checking whether any enhanced redundancy policy, custom or contractual entitlement applies. Sometimes an employer’s offer looks generous until you compare it with what you are already owed.

What claims might I be giving up?

A settlement agreement usually waives important legal rights.

Most settlement agreements are drafted broadly. They may ask you to waive claims for unfair dismissal, wrongful dismissal, breach of contract, unlawful deductions from wages, discrimination, whistleblowing detriment, holiday pay, redundancy pay, bonus, commission and pension-related claims.

That does not mean every claim listed will be relevant to your situation. Employers usually include a wide list of claims as a protective measure. But you should still read the wording carefully so you understand what is being waived and whether anything should be carved out.

The exact drafting matters. Some rights cannot be waived in the same way, and some agreements preserve limited rights, such as the right to enforce the agreement itself or rights that are not intended to be covered by the settlement.

Can I negotiate a better package?

Many settlement agreements are negotiable. Employers may not always say this openly, but there is often room to improve both financial and non-financial terms, particularly where the process has moved quickly or there are legal risks.

Possible negotiation points include:

• higher compensation;
• an agreed reference;
• agreed announcement wording;
• better treatment of bonus or commission;
• clarification of tax wording;
• protection of confidentiality;
• removal or narrowing of post-termination restrictions; and
• practical arrangements that help you move on.

The best negotiations are usually evidence-based. It is not just about asking for more money. It is about showing why the offer should be improved based on process concerns, contractual rights, potential claims and the practical reality of your departure.

What are the risks of signing too quickly?

You may lose leverage and legal rights.

The biggest risk is that you may settle for less than your position is worth. Once a settlement agreement is signed and completed, it is usually very difficult to reopen the discussion.

You may also lose the ability to bring employment tribunal claims, even if you later discover that your employer had already made up its mind before consultation, scored you unfairly, failed to consider alternatives or treated you differently because of a protected characteristic.

Signing too quickly can also create practical problems. You may agree to wording that is too broad, accept an uncertain tax position or fail to secure a reference before your bargaining position disappears.

You may also misunderstand the tax treatment.

Tax on settlement agreements can be technical. Generally, salary, holiday pay and notice pay are taxable. Some compensation payments for loss of employment may benefit from more favourable tax treatment, but that depends on the structure and wording of the agreement.

Settlement agreements often include a tax indemnity. That usually means that if HMRC later says more tax is due, you may be responsible for paying it. That is why the wording should be checked carefully.

What deadlines should I know about?

Employment law deadlines can be short. If you are considering potential claims, deadlines matter. Many employment tribunal claims must usually be started within three months less one day of the relevant act or termination date. Starting Acas Early Conciliation can pause the time limit for a period, but it does not remove the deadline entirely.

The practical point is that negotiations, appeals and correspondence do not necessarily stop the clock. If you spend too long discussing the offer without taking advice, you may lose the ability to bring a claim.

That is one reason why it is usually sensible to get advice early, especially where there is any doubt about the process or the wording of the agreement.

What should I do next?

Take a calm, structured approach. Redundancy situations are stressful, but better decisions usually come from understanding your rights, your leverage and your objectives.

Practical steps include:

• ask for the key documents, including your contract, redundancy proposal, selection criteria, scoring and relevant policies;
• do not resign in frustration;
• keep communications professional;
• make a note of what has happened and when; and
• get legal advice before signing.

If you think the process is unfair, it is often worth looking at the detail. A flawed process can create real leverage, but only if you understand it properly.

What if I think the redundancy is unfair?

A flawed redundancy process can create potential claims.

You may have concerns if your employer has not explained the business reason, has failed to consult properly, has selected you unfairly, has ignored alternative roles, has targeted you after a grievance or whistleblowing disclosure, or has treated you differently because of a protected characteristic.

Potential claims may include unfair dismissal, discrimination, whistleblowing detriment, breach of contract, unlawful deduction from wages or failure to pay redundancy-related sums. The right claim depends on the facts.

It is also important not to assume that every disappointing redundancy is legally unfair. Employers are entitled to restructure and reduce headcount where there is a genuine business reason. The question is whether they acted reasonably, followed a fair process and avoided unlawful discrimination or retaliation.

FAQs: Before you sign a settlement agreement

How can JLN help before you sign?

Early advice can protect your position and improve the outcome.

The Jonathan Lea Network advises employees on redundancy settlement agreements, exit negotiations and employment disputes. We can review the agreement, explain what it means in plain English, check whether your payments and protections are correct and advise whether the offer reflects your legal and commercial position.

We can also help you negotiate improvements where appropriate. That may include a higher payment, better reference wording, clearer tax treatment, protection of bonus or commission, changes to confidentiality wording, release from restrictions or practical arrangements that help you move forward.

If you have been told you are at risk of redundancy and your employer has given you a settlement agreement, do not treat it as a routine HR document. It is a binding legal agreement that may affect your financial package, your future rights, your tax position, your reference and your ability to challenge what has happened.

Getting advice early can make a meaningful difference. It can help you understand whether the redundancy process is fair, whether the offer is reasonable, whether you have grounds to negotiate and what steps you should take before your deadline expires.

JLN can provide clear, pragmatic and reassuring advice at the point you need it most.

Contact Us

We will respond to most enquiries with both an indicative scope of work and fee estimate, as well as the offer of a complimentary 20-minute discovery video call to discuss your issues and how we can help, before sending a more considered formal fee estimate via email.

In some limited cases, if you would just like initial advice and guidance on a call, we may instead offer a fixed fee appointment (commonly charged between £280 and £500 + VAT) whereby we will review the information you provide, hold a video call consultation and then follow up with an advisory email (as well as a fee estimate for any further work identified).

Please email wewillhelp@jonathanlea.net or call us on 01444 708640 as a first step. We first need an overview of the background and your issues, together with any significant documents, to provide an indicative scope of work and fee estimate.

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This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.  

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