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.

Good employment law solicitors point to a special arrangement called  Settlement Agreements.

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.

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 stops 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 criticising them or their work in the future.

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
• – cost of a normal redundancy,
• – 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 be 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.