The long-term survival of many businesses hangs in the balance, can settlement agreements help employers?

Tina Chander, Head of Employment Law, Wright Hassall, considers when employers should look to use a settlement agreement.

The chancellor has unveiled further support for businesses and employees affected by the Covid restrictions. Rishi Sunak announced significant changes to the Job Support Scheme which replaces the furlough scheme in November. But is it enough to save people from being made redundant?

In a recent update from the Office for National Statistics in the Labour Force Survey, it was reported that redundancies increased by over 97% on the same period in 2019. This is the largest increase in redundancies reported since 2009.

However, there is a glimmer of positivity in all the COVID-19 doom and gloom. In September there were signs of slight recovery according to information submitted to HM Revenue & Customs which showed 20,000 more employees on company payrolls than there were in August.

While this may seem encouraging, there have sadly been many more thousands of jobs put at risk this month. It has been reported that Mitchells & Butlers, one of the largest operators of restaurants, pubs and bars in the UK will be making a significant number of employees redundant, as will Edinburgh Woollen Mill Group who have announced there would be a loss of 24,000 jobs across their retail brands.

It would seem that redundancy related dismissals are unavoidable in the current climate, even with the latest assistance from the Government. While never a good topic to discuss, it essential that employers are aware of the correct redundancy consultation process to follow and how they can use settlement agreements to try and mitigate any employment-related claims.

The President of the Employment Tribunals, Judge Barry Clarke, has already stated he believes there is likely to be a significant increase in unfair dismissal claims as businesses restructure their teams to cope with the financial pressures of the pandemic.

Despite the best intentions of employers, it will be impossible to ensure that every redundancy is straightforward, particularly at a time when there is so much stress around COVID-19 and a somewhat uncertain job market. In these situations, when emotions are running high, and the process can be more challenging, it is worth considering a settlement agreement which will help both employer and their employees agree on specific terms so they can achieve an amicable split.

If an employer has a settlement agreement in place with their employee, the employee waives their right to bring a claim against their employer in the future. This is in return for an enhanced financial package that is higher than the employee would receive if a full redundancy process was followed, and the employee was ultimately made redundant.

The terms of the settlement agreement must be reached by both the employer and employee and outlined in a written document which will detail which claims the employee agrees not to pursue. Settlement agreements should always be bespoke for the individual employee and their circumstances, including a clearly expressed waiver of the specific claims.

The agreed settlement figure should be outlined in the settlement agreement; it should include the breakdown of the payments and whether any of the payment is tax-free. It’s also advisable to have a confidentiality clause, which requires the employee to keep the terms of the agreement, the settlement amount and the reasons for the agreement confidential.

Before agreeing to the terms of a settlement agreement, employees are required to seek qualified legal advice on the terms of the agreement. The employer is required to either pay or contribute to the cost of the legal advice under the terms of the settlement agreement. A settlement agreement will not be legally binding until the employee has sought legal advice, and the agreement has been signed off by a solicitor (or other qualified adviser).

As the long-term survival of many businesses hangs in the balance, employers will have some difficult decisions to make, which sadly will include redundancies. Therefore, to ensure the process is as smooth as possible, it is advisable to take legal advice to ensure that the correct process is followed and mitigate the risk of any claims being submitted against the employer and consider looking at settlement agreements to offer everyone the best possible outcome from an impossible situation.

About the author

Tina Chander is Head of Employment Law at Wright Hassall. Tina is a qualified barrister and solicitor with extensive experience in employment law matters for both individuals and businesses.

%d bloggers like this: