Recent reports* suggest that redundancy levels across the UK are increasing significantly, with more than 315,000 roles identified as at risk in 2026 - a 45% rise compared with 2021. Against a backdrop of rising operating costs, wage pressures and wider global uncertainty, many businesses are being forced to make difficult decisions about their workforce.
For employees, redundancy can be an uncertain and stressful experience. For employers, it brings legal and practical challenges. In many cases, this is where Settlement Agreements come into play.
What is a Settlement Agreement?
A Settlement Agreement is a legally binding contract between an employer and an employee, most commonly used when employment is coming to an end - including in redundancy situations.
Typically, the agreement will set out:
- The terms of the employee’s departure,
- Any financial compensation being offered,
- A waiver of the employee’s right to bring legal claims against the employer.
In exchange for signing the agreement, the employee usually receives a financial package - often more than their basic statutory redundancy entitlement.
Why are Settlement Agreements becoming more common?
As redundancy levels rise, employers are increasingly using settlement agreements to:
- Provide certainty for both parties
- Avoid the risk of future legal claims
- Manage exits in a structured and confidential way.
For employees, a Settlement Agreement can offer clarity and financial security at what is often a difficult time.
What should employees look out for?
Is the financial package fair?
A Settlement Agreement should reflect not only your statutory redundancy entitlement but also any additional compensation offered in exchange for giving up your legal rights. This can include notice pay, accrued holiday, bonuses and an ex-gratia payment. It is important to assess whether the overall package properly reflects your role, length of service and circumstances of your departure.
What rights are you giving up?
By signing a Settlement Agreement, you are usually agreeing not to pursue any legal claims against your employer. This may include claims for unfair dismissal, discrimination or breach of contract. It is essential to fully understand the scope of what you are waiving before agreeing to the terms.
Are there restrictive clauses?
Many Settlement Agreements include additional provisions such as confidentiality clauses, non-disparagement terms or restrictions on future employment. These clauses can have ongoing implications, so it is important to understand how they may affect you after you leave your role.
Are the terms negotiable?
Settlement Agreements are often presented as a final offer, but in reality, there may be room for negotiation. This could involve increasing the financial package, amending restrictive clauses or agreeing on a reference. Taking advice early can help you identify where improvements may be possible.
Importantly, for a Settlement Agreement to be legally valid, you must receive independent legal advice.
What should employers consider?
Following a fair process
Even where a Settlement Agreement is being used, employers should ensure that any underlying redundancy process is fair and properly documented. A well-managed process helps reduce the risk of disputes and strengthens the enforceability of the agreement.
Clear and reasonable terms
Settlement Agreements should be clearly drafted and proportionate. Overly complex or unreasonable terms may lead to confusion or challenge, so it is important that the agreement is both transparent and balanced.
Avoiding undue pressure
Employees must be given adequate time and opportunity to consider the agreement and seek independent legal advice. Applying pressure to sign quickly can undermine the validity of the agreement and create legal risk.
There is no identifiable timeframe for employees to have their Settlement Agreements dealt with under the Employment Rights Act 1996, however the ACAS code recommends employees should have 10 days in order to decide if they wish to accept the terms of settlement. In reality it is usually much quicker than this.
Contributing to legal fees
Employers are typically expected to make a contribution towards the employee’s legal costs for obtaining independent advice, although this is not a legal requirement. This helps ensure the agreement is legally binding and supports a smoother process for both parties. Here at Coles Miller Solicitors LLP, we can provide a fixed fee quote for Settlement Agreements that can be agreed before we confirm our instructions and as already said this is paid by the employers on just about every occasion.
Used correctly, Settlement Agreements can help employers manage change while reducing the risk of disputes.
How Coles Miller can help
Our employment law team supports both employees and employers in relation to Settlement Agreements.
We can:
- Review your settlement agreement in detail
- Explain your rights and the implications of signing
- Advise on whether the financial offer is reasonable
- Negotiate improved terms where appropriate
- Ensure the agreement is legally valid.
Our aim is to give you clarity, confidence and the best possible outcome.
For employers
We can:
- Draft clear, robust Settlement Agreements
- Advise on redundancy processes and risk management
- Help structure fair and commercially sensible exit packages
- Support negotiations with employees
- Ensure compliance with employment law requirements.
Moving forward with confidence
With redundancy levels rising, Settlement Agreements are likely to become an increasingly common part of the employment landscape.
Whether you are an employee facing redundancy or an employer having to think about and structure workforce changes, getting the right advice at the right time can make all the difference.
If you would like support with a Settlement Agreement, our Employment Law team would be happy to help.
*Daily Mail report
