Settlement agreements, Redundancies and Covid-19
Without a doubt, the Covid-19 crisis is having a significant impact upon many SME businesses and whilst the furlough scheme has provided a safety net for many, there is apprehension amongst the business community about what the future is going to hold when this support is finally withdrawn in October.
We are speaking with an ever-increasing number of businesses whose focus has now turned to survival post-furlough and who are looking at ways to reduce costs and flex their workforce in order to continue successfully weathering the storm. For many employers, their only viable option finance-wise is to make redundancies however this approach does not always “feel” right for them in the current climate when there is no getting away from the fact that the global pandemic is going to make finding alternative work very difficult for those who are dismissed through no fault of their own.
We are finding that many employers are wanting to try and find a balance between their business’ needs and offering as much support to their employees as possible if it becomes necessary to place their roles at risk of redundancy, particularly in the context of the Coronavirus Job Retention Scheme. Employers are however, very keen to protect their interests both in a commercial and legal sense and there has therefore been a general reluctance to give an employee notice of termination on grounds of redundancy to take effect at the end of the CJRS in October without some kind of surety in the meantime that the employee will not seek to challenge the fairness of their dismissal.
Redundancy consultation processes can be tricky at the best of times and are often complex and timely. Consultation processes are further complicated when an employee seeks to dismiss an employee as redundant a number of months in advance: even if an employer seeks to do this to give an employee the benefit of the furlough scheme, it is still an approach which exposes the employer to some risk because they are dismissing someone based, in part, on future events.
In order to navigate and manage the legal risks, the commercial needs and the human side of redundancy dismissals during the Covid-19 pandemic, many employers are therefore turning to settlement agreements as a means of terminating employment when a dispute arises. Under a settlement agreement an employer agrees to pay an enhanced termination sum to an 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 as well as minimising the risk of future claims as far as is possible. Settlement agreements are confidential and so can be negotiated and agreed without affecting the morale of the wider workforce.
Under a settlement agreement which is being used to facilitate a future redundancy, the employee can receive their redundancy payment as normal upon termination but can remain furloughed until the end of the CJRS. The employer will need to top up any contractual notice and holiday pay due to the employee however they can still claim for furlough pay in accordance with the rules of the scheme in force at the time, thereby reducing the employer’s financial liabilities.
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 an amount of financial certainty. As well as presenting an attractive option to employer, we are therefore finding that employees are also currently seeing settlement agreements in a generally positive light.
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, please do contact a member of the Employment Team on 01274 864999.