Making a clean break

Making a clean break

Post-furlough redundancies are about to cause a sudden spike in settlement agreements, writes Tina Chander

According to President of the Employment Tribunals, Judge Barry Clarke, there will undoubtedly be an increase in unfair redundancy claims when the furlough scheme is finally phased out this month.

According to experts, this will lead to an increase in the use of settlement agreements, as businesses across a range of sectors look to reduce the risk of tribunal claims, especially if something has gone wrong during the redundancy process.  

A settlement agreement is a legal contract between the employer and employee that some businesses are utilising when making workers redundant. Typically, a settlement agreement will offer the employee an enhanced redundancy package, allowing them to receive a payment higher than their contractual entitlement.

In return, the employee agrees not to pursue against the employer, any claims they believe may have arisen during their employment, its termination or the indeed the redundancy process.

How can it help?

Given the scale and speed with which many businesses will act, the potential for costly mistakes is huge and settlement agreements are a viable tool to resolve some of the challenges presented.

Although businesses will hope for a straightforward and amicable split from employees being made redundant, it’s impossible to guarantee every redundancy will proceed without dispute.

Naturally, the redundancy process can come with a lot of mixed emotions from both parties, so a settlement agreement will ensure you part company on certain agreed terms.

Under these terms, employees will waive their right to bring any claims against their employer, which will save any long-running and unwanted legal disputes, at a time when businesses must focus on their own long-term stability and indeed, survival.

Not only this, but settlement agreements ensure employees receive a fair financial package, higher than they usually would, which given the ongoing economic uncertainty, could make a big difference to their own personal situation.

It is important to note however that a settlement agreement cannot compel an employee to waive their right to claim for any personal injury which the employee was not aware of at the date of signing of the agreement.

Agreeing neutral terms

In some cases, there may have been a past incident that although addressed and resolved at the time, could resurface if the employee in question feels aggrieved at the prospect of redundancy.

In this situation, the business may feel it’s necessary to use a settlement agreement to avoid the potential of a costly employment tribunal, where there’s a risk the employee is awarded significant compensation.

However, before a settlement agreement can be arranged, its terms must be mutually agreed between the employer and employee and set out in the written statement agreement documents.

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 also include a confidentiality clause, which requires the employee to keep the terms of the agreement, the settlement amount and the reasons for the agreement confidential.

Moving forward positively

Given the ongoing uncertainty surrounding the Covid-19 crisis, the October deadline for furlough support is expected to unfortunately precipitate a wave of redundancies across all sectors.

It will be a stressful time for employers and employees alike, especially as businesses face an uphill battle to maintain financial stability and secure their long-term survival.

If your business is considering redundancies as part of a wider restructure, 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 Wright Hassall, a top-ranked firm of solicitors based in Warwickshire, providing legal services including: corporate law; commercial law; litigation and dispute resolution; employment law and property law.

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