Can Settlement Agreements rescue businesses facing COVID-19 redundancies?

There is a way for employers to make redundancies to survive the COVID economic hit and avoid legal hassles that come with it.

Government employment law advice states that a redundancy happens when there is no need for an organization to retain a particular job. This can happen because a business: changes what it does, does things differently, or changes location, or closes down a workplace. Yet, redundancy done incorrectly turns into an unlawful unfair dismissal. Employers have to demonstrate that the job will no longer exist.  Employment lawyers advise that employee rights include: redundancy pay, time off to look for jobs or training, and not to be unfairly selected for redundancy.

Good employment law solicitor point to a special arrangement called settlement agreement.

Despite the promise of vaccines, the need to find alternatives to redundancies are clear. Employers are considering redundancies due to the reduction in the government’s job support subsidies.

As a result, the president of the employment tribunals for England and Wales, Judge Barry Clarke, has warned of an explosion of legal challenges to job redundancies.

Settlement Agreements could reduce the likelihood of employers going to employment tribunals.

Settlement agreements

A Settlement Agreement, or compromise agreement, is a deal between an employer and employee that ends a contract of employment. It means that an employee agrees not to pursue a legal claim against the employer in return for some kind of benefit. A valid settlement agreement is one that adheres to employment law, can be accepted by an employment tribunal and where an independent, employment lawyer is involved in negotiations.

In return for a benefit, employees agree not to pursue legal claims of unfair dismissal, constructive dismissal. The Agreement is written up in a document and may also include ‘confidentiality clauses’ that stop the employee from talking about it.

An employee can still claim for a personal injury not known about at the time of the Agreement or to pursue a legal dispute about pensions.

Such agreements benefit the employee by offering them a tax-efficient payment, enabling them to request a job reference, while ensuring the agreement prevents their ex-employer from criticizing them or their work in the future.

It will mean that the employer will receive payments that could include a tax free sum, redundancy, holiday, bonus, other sums and a job reference. Settlement agreements mean an employer can avoid the publicity, costs or the uncertainty of an employment tribunal. For employees, it means financial and other compensation for losing a job but without any necessity to take legal action at an employment tribunal.

Key settlement points

Costs involved in an agreement will vary but issues that will affect a financial part of the Settlement include:

  • Length of time the employee has worked for the employer
  • Circumstances around the furlough, government schemes, and COVID-19
  • Redundancy legal advice
  • Potential cost of a legal claim.

The employer will often contribute to the cost of the employee’s independent legal advice and to cover the advice given in the agreement.

The employer needs to consider which legal disputes could be raised by the employee and how much it would take to buy off those potential claims.

Employees are typically interested in Settlement Agreements when the payment is higher than redundancy.