Considering redundancies? Why settlement agreements are your friend.
This time last year, we were edging out of the Covid-19 pandemic with the furlough scheme being wound up. Fast forward 12 months and we now find ourselves on the edge of a cost of living disaster, a recession and a utility bill crisis.
Without doubt, there’s an understandable apprehension about what the next few months will bring for employees and employers alike and once again, increasing numbers of businesses will have to turn their focus to surviving the final quarter of 2022 and look at ways to reduce costs and flex their workforce as they move into 2023..
For many employers, the only viable option is making redundancies. However, this approach often doesn’t “feel” right in a climate where there’s no escaping the fact that through circumstances out of most peoples’ control, finding alternative work will be difficult for employees who are dismissed through no fault of their own.
Striking a balance between business and emotion
Many employers are now trying to strike a balance between the needs of their business and offering as much support to their employees as possible, if it becomes necessary to place their roles at risk of redundancy. Keen to protect their interests both in a commercial and legal sense, there has been a general reluctance by businesses to give an employee notice of termination on grounds of redundancy without some kind of surety that the employee in question will not seek to challenge the fairness of their dismissal.
It’s no secret that Employment Tribunal claims are relatively easy for an employee or former employee to bring against a business. The fee requirement was abolished some time ago, and some employees will feel as though they have nothing to lose by bringing a claim and seeing what result they can achieve.
Redundancy consultation processes can be tricky at the best of times and are often complex and timely. They are made even more complex when an employer seeks to dismiss an employee as redundant when they feel that business could nevertheless improve longer-term, but not until at some unknown point in the future. Redundancy processes can also be lengthy and emotionally draining, and many businesses simply need to be able to place their energies and focus elsewhere at this crucial time.
To navigate, manage and balance the legal risks with the commercial needs of a business and the emotive side of making redundancies, many employers are turning to settlement agreements as a means of terminating employment when a dispute arises.
What is a settlement agreement?
Under a settlement agreement, the employer agrees to pay an enhanced termination sum to the employee in exchange for them agreeing to waive their employment rights. The settlement agreement has the effect of terminating employment and avoids the need for lengthy consultation, while minimising the risk of future claims as far as is possible. Settlement agreements are confidential, so they can be negotiated and agreed without affecting the morale of the wider workforce.
A settlement agreement will give an employer assurance that an employee’s redundancy will not attract any challenge, but in these wholly uncertain times, they also offer the employee being made redundant an amount of financial certainty. This means that – as well as presenting an attractive option to employer – many employees are also currently viewing settlement agreements in a positive light.
Key considerations surrounding settlement agreements include the way in which you approach the subject of entering into one. This must be done carefully. There are rules (and corresponding sanctions) should employers perceive and treat such conversations in the wrong way. If the conversation goes well and both parties are in agreement, the settlement agreement itself needs to be carefully drafted, and the employee will need to take their own independent legal advice for the ‘deal’ to be effective.
If you want to discuss the viability, pros and cons of a settlement agreement for any of your employees who are facing the prospect of redundancy or otherwise (the use of a settlement agreement not just confined to a redundancy situation), please do contact a member of the Employment Team on 01274 864999 or email email@example.com
Author: Charlotte Geesin, Legal Director at Howarths