2025 – a bumper year for redundancies…and settlement agreements

Sally Bird, Partner

It was widely predicted that there would be a rise in redundancies in 2025 as a result of the financial squeeze caused by the Labour party’s decision to increase Employer’s national insurance contributions and the April 2025 increases to the National Minimum Wage. Whilst these increased costs were the most cited reason for redundancies, additional factors including shifts in consumer behaviour towards increased online shopping and budget conscious spending have impacted traditional retail business leading to store closures and job losses. The rise of AI and automation is also contributing to redundancies as some roles are replaced by technology.

The latest data published by the Office for National Statistics is that over the period February to April 2025 it estimates that the number of payrolled employees fell by 78,000. The early estimate of payrolled employees for May 2025 shows a decrease by 109,000.

This is certainly borne out by our workload within the Employment team here at Kuits where so far in 2025 we have seen a significant increase in instructions. These have come not only  from employer clients looking to make redundancies, but from employees dismissed as a result of larger-scale redundancy programmes, who are offered enhanced redundancy payments conditional upon them entering into a settlement agreement on which they need to take independent legal advice.

In the course of our recent advice to clients we have been asked several times:

Is it lawful or fair to make payment of enhanced redundancy conditional upon signing a Settlement Agreement?

When employers are willing and able to offer enhanced redundancy payments, it is now common to see this being made conditional on employees signing away their rights under a Settlement Agreement. Quite often this is perceived to be unreasonable and morally wrong. But why shouldn’t an employer be able to obtain the benefit of a claims waiver and a clean break if it is willing to pay over the statutory minimum?

If employees are paid enhanced redundancy without being required to enter into a Settlement agreement, then they are free to pursue a claim of unfair dismissal. However, if a claim succeeded, the employee would be required to give credit for the enhanced payment against any award of compensation made to them. If an employee believed that they could do better by pursuing a claim rather than accepting the enhancement and waiving their right to claim, they could refuse to enter a Settlement agreement, decline the enhancement and take that route. That seems fair when the enhanced pay on offer is generous -but not all schemes are particularly given the need to ensure that the method of calculation does not fall foul of age discrimination laws. If the additional amount is modest or minimal the perceived unfairness is that employees should not be put into that position when faced with losing their jobs, and in that scenario are often reluctant to pursue claims and have no crystal ball to assess what their potential future losses could be to weigh up the offer.

Nonetheless, it is generally considered that such a requirement is lawful and fair, and this practice is widespread. Could discrimination law provide a basis for challenge? The matter has come before the courts and in one case, a redundant employee argued that the requirement to sign a Settlement Agreement in return for enhanced redundancy pay indirectly discriminated against older workers since they are more likely to bring age discrimination claims. In this case, the Judge struck the employee’s claim out as having no prospect of success. The employee’s subsequent appeal did not succeed for the following reasons:

1. First, was that there is a strong public policy of encouraging parties to settle their claims. Therefore, rendering the requirement unlawful would discourage employers and employees from settling their disputes via a Settlement Agreement.
2. It was held that requiring a Settlement Agreement does not put employees of a certain group, i.e. older workers, at a particular disadvantage over another group, i.e. younger workers on the basis that the requirement to sign a Settlement Agreement to receive enhanced redundancy affects all redundant employees in the same way.
3. Even if the requirement did have a discriminatory impact, employers would be able to use the defence that it is a proportionate means of achieving a legitimate aim. The Judge recognised that imposing the condition of signing a Settlement Agreement to receive enhanced redundancy pay can be justified as employers have a legitimate interest in seeking finality in respect of any issues and potential claims arising out of making employees redundant.

An employer wishing to impose such a condition should consider carefully how this is communicated to employees at risk of redundancy, it being vitally important to ensure clear and unambiguous communication, taking into account the wording of any existing redundancy policy or enhanced redundancy payment scheme. More complex questions could arise where there is an existing contractual enhanced redundancy scheme where receipt of payment is not conditional on the employee signing a settlement agreement. We can offer expert advice on redundancy and the implementation or variation of enhanced redundancy scheme, please contact the employment team on 0161 832 3434.