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Looming redundancies could lead to more Settlement Agreements

Paloma Kubiak
Written By:
Paloma Kubiak

The President of the Employment Tribunals, Judge Barry Clarke, said he expected an increase in unfair redundancy claims when the furlough scheme is phased out next month. Here’s what you need to know about Settlement Agreements.

It seems redundancy-related dismissals will be unavoidable for many employers facing tough trading conditions and while every business will strive to achieve an amicable split from employees, it’s impossible to guarantee that every redundancy will be straightforward.

Given the stressful nature of the situation and the uncertain re-employment prospects, redundancy proceedings can become more challenging, which is when a Settlement Agreement can help both parties agree certain terms to achieve a ‘clean break’.

With an agreement in place, employees waive their right to bring any claims against their employer, in return for an enhanced redundancy package, which could make a significant difference to their personal situation.

A Settlement Agreement benefits the employee too, who will invariably receive a tax-efficient payment and be in a position to request a job reference, while ensuring the agreement prevents their ex-employer from criticising them or their work in the future.

Importantly, a Settlement Agreement can’t compel an employee to waive their right to claim for any personal injury the employee was not aware of when signing the agreement, or pursue a claim for accrued pension rights, or to enforce the actual terms of the Agreement itself.

Agreeing neutral terms

In rare cases, a past incident may be brought up by an employee who feels aggrieved at the prospect of redundancy and although addressed at the time, employers can use a Settlement Agreement to avoid any unnecessary employment tribunals.

Before an agreement can be reached, terms must be mutually agreed between both parties and outlined in written statement agreement documents, explicitly detailing any claims the employee agrees not to pursue.

These agreements should be customised for the specific employee and their individual circumstances, including a clearly expressed waiver of the specific claims.

With regards to the settlement payment, the agreement should also contain a clear breakdown of the payments which have been agreed and whether any of them are to be paid tax-free.

Most Settlement Agreements will include a confidentiality clause that requires the employee not to make public the terms of the agreement, the settlement amount and the reasons for the agreement.

The costs involved

A Settlement Agreement has no set scale of payments, as costs vary with each unique situation. But key factors should be considered when deciding the amount, including:

  • How long the employee has worked for the business
  • The circumstances surrounding the agreement
  • How long it would take to settle the dispute normally
  • The potential liability/cost of having to defend a claim.

Businesses will often contribute to the legal costs of the employee, who must seek independent legal advice on the terms of the agreement, with the adviser, who must have relevant insurance to cover the advice given, named in the agreement.

The amount of this contribution is typically capped between £250 – £500, which should be outlined in a clause within the settlement agreement.

An employee may choose to work with an employment lawyer to negotiate their Settlement Agreement for them. But consideration should be given to the costs involved against any likely improvement in the agreement terms and the potential to be re-hired in the future when better times return.

When a business is negotiating a Settlement Agreement with an employee, if there is any ongoing dispute, the discussions and any correspondence between the two are likely to be marked ‘without prejudice’.

The without prejudice rule only applies to negotiations that are genuine attempts to settle a dispute and prevents these discussions from being referred to in a Court or Tribunal if no agreement is reached.

The rule is designed to encourage parties to settle their disputes out of court, with both able to speak freely without worrying what they have said might be used against them if they are unable to reach an agreement.

Making the best of a difficult situation

October’s deadline for the end of furlough support will be a challenging time for employers and employees alike, especially as businesses face the difficult task of restructuring to cope with mounting financial pressures.

However, with question marks surrounding their long-term survival, businesses will have to make some tough decisions, including perhaps largescale redundancies, to ensure the business survives to recover.

Therefore, it’s crucial that the process runs smoothly, with both parties achieving a ‘clean break’ using Settlement Agreements. This will ensure the best possible outcome is secured, allowing everyone to move forward positively.

If your business is considering redundancies, then it’s important to contact a team of experienced employment lawyers, who will advise you on how to proceed safely and effectively.

Tina Chander is a partner at Midlands law firm, Wright Hassall, and deals with contentious and non-contentious employment law issues.