📌 Key Takeaways

  • Employment can end in many ways: resignation, dismissal, redundancy, expiry of a fixed-term contract, a mutually agreed settlement, or retirement. Different routes carry different rights, payments and tax treatment — do not treat them all the same.
  • Types of dismissal: fair dismissal / unfair dismissal / wrongful dismissal (relating to notice / contract) / constructive dismissal / summary dismissal (for gross misconduct) / automatically unfair dismissal. For the substantive rules on unfair dismissal see the Unfair Dismissal Guide.
  • Statutory minimum notice: employed for 1 month–2 years = 1 week; after 2 years, +1 week per complete year, up to a maximum of 12 weeks (ERA 1996 s.86); a contract may provide for longer. PILON (payment in lieu of notice) and garden leave are common alternatives.
  • Statutory redundancy pay: requires 2 years’ service; 0.5 / 1 / 1.5 weeks per complete year by age (<22 / 22–40 / 41+), up to 20 years, week’s pay capped at £751 (from 6 April 2026) → maximum £22,530.
  • Collective redundancy: proposing 20 or more redundancies at one establishment within 90 days requires collective consultation — at least 30 days for 20–99 redundancies, at least 45 days for 100 or more; failure to consult entitles employees to a protected award of up to 90 days’ pay (⚠️ rising to 180 days from 6 April 2026).
  • Settlement agreement: legally binding; waives (some) claims; the law requires you to obtain independent legal advice before it takes effect; you can negotiate the ex gratia payment, agreed reference, notice / PILON, and confidentiality terms.
  • Tax: termination payments (ex gratia / statutory redundancy pay) are tax-free up to £30,000; but PILON / the taxable element (PENP) is subject to tax and NI.
  • Time limits: Employment Tribunal claims generally must be brought within 3 months less one day, and you must first go through ACAS Early Conciliation.
  • Jurisdiction: England, Scotland and Wales share a unified Employment Tribunal; Northern Ireland has its own separate system.

Whether you have been dismissed, face company redundancies, or have received a “sign here and go” settlement agreement, the questions most commonly asked by the Chinese community in the UK are: “Is what the company is doing lawful? How much am I entitled to? Should I sign? Can I still bring a claim after signing? Does this money get taxed?”

Employment termination in the UK is a system governed by clear rules, established rights, and well-worn tactics — notice periods, redundancy procedures, statutory redundancy pay, settlement agreements, final pay and tax: each stage can make a difference of thousands, even tens of thousands, of pounds. Not knowing the rules can easily result in being fobbed off cheaply, signing away rights by mistake, or missing the 3-month claims deadline.

This article is an overview guide that covers the three main scenarios of dismissal, redundancy and settlement in one place; for the substantive detail of unfair dismissal (fair reasons, Burchell, Polkey, compensation caps) see the dedicated Unfair Dismissal Guide.

⚠️ Read this before signing a settlement agreement: Once a settlement agreement is signed and you have obtained independent legal advice, you will generally have waived the relevant claims. Do not sign on the spot — first understand what can be negotiated, what it is worth, and seek assistance if needed.

Primary legal sources:

1. Ways in Which Employment Can End

Route Key points
Resignation You choose to leave; you must give notice in accordance with your contract; if the employer’s serious breach forces you to resign, this may constitute constructive dismissal
Dismissal The employer terminates; may be fair, unfair, wrongful, or summary (see Section 2)
Redundancy The post genuinely disappears (business closure, site closure, reduced need for that kind of work); specific procedures and statutory redundancy pay apply (Section 4)
Expiry of a fixed-term contract Non-renewal of a fixed-term contract still counts as a dismissal — you may be able to claim unfair dismissal or redundancy
Mutually agreed settlement Paid resolution via a settlement agreement (Section 5)
Retirement There is no default retirement age; forcing someone to retire on grounds of age must be objectively justified, otherwise it constitutes age discrimination

2. Types of Dismissal

Type Meaning
Fair dismissal A fair reason under ERA 1996 s.98 (capability, conduct, redundancy, illegality, some other substantial reason) plus a fair procedure
Unfair dismissal No fair reason and/or unfair procedure (qualifying period required) — see the dedicated guide
Wrongful dismissal Failure to give (adequate) notice or breach of contract — a contractual claim; no qualifying period required
Constructive dismissal The employer commits a serious breach of contract, forcing you to resign — treated as a dismissal
Summary dismissal Immediate dismissal without notice for gross misconduct — a fair procedure is still required
Automatically unfair dismissal Dismissal for pregnancy, whistleblowing, exercising a statutory right, etc. — no qualifying period required

📌 Do not confuse unfair dismissal and wrongful dismissal: unfair dismissal asks “was the dismissal justified, and was the procedure fair?” (qualifying period required); wrongful dismissal asks only “was sufficient notice / contract given?” (no qualifying period required).

3. Notice Periods and Notice Pay

  • Statutory minimum notice (employer to employee) (ERA 1996 s.86):
  • Employed for 1 month–2 years: 1 week;
  • After 2 years: +1 week per complete year, up to a maximum of 12 weeks;
  • Contractual notice period: a contract may provide for longer (whichever is the greater applies);
  • Employee’s notice of resignation: the statutory minimum is generally 1 week (after 1 month’s employment); a contract may require more;
  • PILON (Payment in lieu of notice): a lump sum paid instead of working notice; taxable (see Section 6);
  • Garden leave: you remain employed and paid during the notice period but do not work — you remain bound by contractual obligations such as non-compete and confidentiality clauses.

4. Redundancy

1. What Constitutes a “Genuine Redundancy”

The post genuinely disappears (business closure, site closure, reduced need for that type of work). Using redundancy as a pretext for dismissal (where the real reason is personal to you) may constitute unfair dismissal.

2. A Fair Redundancy Procedure

  • Consultation: genuine consultation with the affected employee(s);
  • Fair selection criteria: objective (e.g. skills, appraisal records); must not be based on protected characteristics, pregnancy, trade union membership, etc.;
  • Consideration of suitable alternative roles (including a 4-week trial period);
  • An unfair procedure or improper selection may constitute unfair dismissal.

3. Statutory Redundancy Pay

Item Rules (2026)
Qualifying period 2 years’ continuous employment
Calculation Per complete year: <22 years old: 0.5 week’s pay; 22–40: 1 week’s pay; 41+: 1.5 weeks’ pay
Cap Maximum of 20 years service counted; week’s pay capped at £751 (from 6 April 2026)
Maximum amount £22,530 (= 30 × £751)

📌 An employer may pay an enhanced redundancy payment above the statutory amount — this depends on the contract, policy, or negotiation. Statutory redundancy pay counts towards the £30,000 tax-free threshold (Section 6).

4. Collective Redundancy Consultation

  • Proposing 20 or more redundancies at the same establishment within 90 days requires collective consultation (with recognised trade union or elected representatives):
  • 20–99 employees: at least 30 days;
  • 100 or more employees: at least 45 days;
  • The employer must notify the Secretary of State (Redundancy Payments Service) using form HR1;
  • Failure to consult collectively: affected employees are entitled to a protected award of up to 90 days’ pay (⚠️ rising to 180 days from 6 April 2026).

5. Settlement Agreements

A settlement agreement is a legally binding written contract between employer and employee for a paid resolution of claims (formerly known as a compromise agreement):

  • Effect: you waive the claims specified in the agreement (e.g. unfair dismissal) in exchange for a payment;
  • ⚠️ Statutory requirements for validity (ERA 1996 s.203): you must obtain advice on the terms of the agreement from a “relevant independent adviser” (e.g. a solicitor) before it takes effect — the employer usually contributes to your legal advice costs;
  • Protected conversation (s.111A) / without prejudice: certain pre-dismissal discussions about settlement are inadmissible in an unfair dismissal claim — but there are exceptions (e.g. improper conduct);
  • What can be negotiated: the ex gratia payment, an agreed reference, notice / PILON, confidentiality / non-disparagement clauses, payment for accrued but untaken annual leave, retention period / leaving date, etc.;
  • ⚠️ Do not sign on the spot: first understand what you are waiving and whether it represents fair value; obtaining legal advice is your right.

📌 Negotiation points: strike the balance between “the employer wants certainty and confidentiality” and “you want a higher payment and a good reference“; aim to keep the ex gratia element within the £30,000 tax-free threshold.

6. Final Pay and Tax

What Final Pay Should Include

  • Wages up to and including the last day of work;
  • Payment for accrued but untaken annual leave;
  • Any notice pay / PILON due;
  • Any outstanding bonus, overtime, or expenses.

Tax Treatment

Payment Tax treatment
Ex gratia payment / statutory redundancy pay and other genuine “termination payments” Tax-free up to £30,000 (*ITEPA 2003 s.403*); anything above £30,000 is subject to income tax
PILON (payment in lieu of notice) Taxable and subject to NI (the taxable element is calculated using the PENP rules)
Wages / accrued holiday / bonus Taxable and subject to NI in the normal way

📌 The £30,000 exemption applies only to genuine termination payments — do not mistake taxable PILON or regular wages for tax-free amounts. For complex cases, it is advisable to verify the tax position.

7. Time Limits and Enforcing Your Rights

  • Employment Tribunal claims: must generally be brought within 3 months less one day of the dismissal or event, and you must first go through ACAS Early Conciliation (which pauses the clock);
  • Wrongful dismissal (notice / contract) may be pursued in the Employment Tribunal or the civil courts (different limits and financial caps apply);
  • For qualifying period, compensation and procedure for unfair dismissal, see the Unfair Dismissal Guide; for an overview of workplace rights see Workplace Rights.

8. Common Scenarios and Pitfalls for the Chinese Community

  • “The company wants me to sign and leave today” — Do not sign on the spot; a settlement agreement only takes effect once you have obtained independent legal advice, so you have time to evaluate the offer.
  • Being targeted through a sham redundancy — if the real reason is personal to you, or the selection criteria are unfair, it may be unfair dismissal.
  • Assuming all redundancy pay is tax-free or all taxable — genuine termination payments are tax-free up to £30,000; but PILON is taxable.
  • Not knowing about the right to consultation in collective redundancy — 20 or more redundancies require 30/45 days of consultation; failure to consult entitles employees to a protected award (maximum 180 days from 2026).
  • Being talked into “voluntary resignation” — “voluntarily” leaving may mean you forfeit your redundancy pay and find it harder to claim unfair dismissal; clarify the consequences first.
  • Missing the 3-month time limit — however meritorious your claim, it will be rejected; contact ACAS Early Conciliation promptly and issue proceedings if necessary.
  • Language barriers and difficulty understanding the agreement — you can seek bilingual assistance or free court interpreter services (for tribunal proceedings).

Circle Vision Foundation Services

The Circle Vision Foundation (CVF) provides assessment and assistance for the Chinese community in the UK on employment termination matters:

  • Legality assessment of dismissal / redundancy — determining whether the dismissal was fair and whether proper procedures were followed
  • Calculation of statutory entitlements — notice period, statutory redundancy pay, final pay and tax-free threshold
  • Settlement agreement review and negotiation guidance — bilingual explanation of what you are waiving and what you can seek to negotiate (note: you will still need to obtain independent legal advice to make the agreement valid)
  • Collective redundancy consultation rights — consultation requirements and protected awards for 20 or more redundancies
  • ACAS Early Conciliation and ET time limit management — avoiding missing the 3 months less one day deadline
  • Interpreter arrangements — language support for medical appointments, tribunal hearings, and negotiations

Contact us:

📌 Jurisdiction / Data Version Note

  • Scope: England, Scotland and Wales share a unified Employment Tribunal; Northern Ireland has its own separate system.
  • Version of rules: based on ERA 1996 (s.86 / s.98 / s.162 / s.203), TULRCA 1992 (s.188 / s.207A), ITEPA 2003 s.403, and the Employment Rights Act 2025; includes the week’s pay cap of £751, statutory redundancy pay cap of £22,530, and collective redundancy protected award increase to 180 days — all effective from 6 April 2026, as at June 2026.
  • This article does not constitute legal or tax advice — it is an overview guide; for individual cases (especially settlement agreements and tax matters) please consult a solicitor or the Circle Vision Foundation.

Version & Responsibility:

  • Jurisdiction: primarily England and Wales; Scotland operates under the same ET system
  • Data sources: legislation.gov.uk, gov.uk (redundancy / dismissal / settlement agreements), ACAS
  • Date of last review: 2026-06-06
  • Published by: Circle Vision Foundation (England & Wales registered charity no. 1209727)
  • Feedback and corrections: if you find that rules are out of date or there is a factual error, please email [email protected] and we will verify and update within 14 days.

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