Lawyer Monthly hears from Tina Chander, partner at leading Midlands law firm Wright Hassall, on the growing importance of settlement agreements in the corporate climate of 2020.
According to Judge Barry Clarke, the President of the Employment Tribunals, there is likely to be a noticeable increase in unfair redundancy claims as businesses restructure their teams to cope with the financial pressures of the furlough scheme ending.
Unfortunately, redundancy-related dismissals will be unavoidable for many employers, which will undoubtedly lead to an increase in settlement agreements, as businesses look to reduce the risk of future tribunal claims.
Described as a legal contract between employer and employee, a settlement agreement provides the employee with an enhanced redundancy package, in return for them not pursuing any claims against the employer.
This can relate to any issues that have arisen during the employment, its termination or the redundancy process, protecting businesses from any long-running or costly disputes.
How can it help?
Given the ongoing financial uncertainty many businesses face, there will be a need for quick action, with redundancies coming thick and fast once the furlough deadline expires later this year.
Whilst businesses will strive to achieve an amicable split from employees, it’s impossible to guarantee that every redundancy will be straightforward, especially given the stressful nature of the pandemic and the uncertain re-employment prospects. When emotions are running high, proceedings can become more challenging, so a settlement agreement will help both parties agree certain terms, so they can achieve a ‘clean break’.
With an agreement in place, employees will waive their right to bring any claims against their employer, in return for a fair financial package that is much higher than they would usually receive, which could make a significant difference to an employee’s personal situation.
With an agreement in place, employees will waive their right to bring any claims against their employer
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, or pursue a claim for accrued pension rights, or to enforce the actual terms of the Agreement itself.
Agreeing neutral terms
In some cases, there may have been a past incident that has come to light, as the employee in question feels aggrieved at the prospect of redundancy. Although it may have been addressed at the time, employers could use a settlement agreement to avoid any unnecessary employment tribunals, especially if there’s a risk of compensation being awarded.
Before an agreement can be reached, terms must be mutually agreed between both parties and outlined in written statement agreement documents, explicitly detailing which 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, which requires the employee to keep the terms of the agreement, the settlement amount and the reasons for the agreement confidential.
The costs involved
It’s important to remember that a settlement agreement has no set scale of payments, as the outgoing costs can vary with each case.
There are several key factors to consider when deciding the amount, which include:
- 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 the claim
It’s not uncommon for the business to cover or contribute to the individual’s legal costs, as they are required to seek independent legal advice on the terms of the agreement.
This statutory requirement, set out in section 203(3) Employment Rights Act 1996, states the legal adviser must be named in the agreement and have relevant insurance to cover the advice given.
This can vary between businesses, but the amount of this contribution is typically capped between £250 – £500, which should be outlined in a clause within the settlement agreement.
Securing a positive outcome
October’s deadline for 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 largescale redundancies, to weather the storm and protect themselves. 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.