Redundancy and Utilising Settlement Agreements

Posted:28th September 2020

Covid-19 is having a huge impact on business, with many companies struggling to survive. Solicitor Graham Shannon, explains what to do if you’re considering making staff redundant.

During the course of 2019, over 106,000 jobs in the UK were lost through redundancy. The forecast for jobs losses in 2020, as a result of Covid-19, remains uncertain – but it’s expected to be far higher.

For an indication of what lies ahead, we only need look back to the Financial Crisis of 2009. At that time, 235,000 people were laid-off across the UK, as businesses went into freefall and profits nose-dived. The correlation between economic downturn and job losses is obvious and, in most cases, inevitable. As the pandemic sends us into another recession, it goes without saying that jobs will be lost.

Why choose redundancy?

Redundancy is considered a fair way for businesses to end the employment of their staff. However, the law has evolved in recent years to provide greater protection to employees who are at risk of losing their jobs. A classic redundancy situation arises when a business stops trading altogether, or decides to close one or more, but not all, of its places of operation. Redundancy can also come about when an employer decides it can carry on business as normal with fewer employees, while saving money.

While the ‘setting of the bar’ in terms of establishing a redundancy situation is relatively low for employers, it is unquestionably high when it comes to how members of staff should be treated. The requirements in law, coupled with guidance produced by the Government’s Advisory, Conciliation and Arbitration Service (ACAS), combine to protect workers, while presenting a number of challenges to employers. In order to avoid unfair dismissal claims and legal action, it’s important that employers set aside sufficient time to deal with the process properly and get it right.

Employees unhappy with the process can go to court to an employment tribunal and can claim up to 52 weeks’ gross pay, subject to statutory caps. Add to this the cost of additional management time and resources in defending claims, which can take around 18 months to conclude, it can amount to quite a sum.

Consultation and challenges

If you know that you will be letting staff go when the furlough scheme ends, you should be thinking about redundancy now. Don’t wait.

You have a legal obligation and, in some situations, prescribed consultation timeframes, so it’s best to get the process started as soon as the decision has been made.

If you are dismissing 20 or more employees in a 90-day period, you will need to collectively consult with elected representatives for at least 30 days before the first dismissal takes place. If there are more than 100 dismissals, you will need to consult for 45 days.

There are so many things to consider throughout the process. First and foremost, businesses need to recognise that a redundancy situation has arisen. Before any other steps are taken, they need to make sure employees are warned of the risk to their jobs and are consulted properly.

When we refer to consultation, it must be meaningful, real consultation, and not simply the justification of a decision already taken. Tick box exercises are not for this process.

Staff should be consulted on the different possibilities and outcomes, and fully considered for alternatives, such as re-deployment to other roles or a different part of the business. There are meetings to organise, and the task of identifying selection pools. This is where some, but not all, employees are at risk of redundancy. The business must select which positions are to become redundant and the staff it could affect.

Businesses must then apply fair, transparent, and non-discriminatory selection criteria to decide who goes and who stays.

Fair criteria and approaches include:

  • Length of service – last in, first out
  • Skills, qualifications, and experience
  • Disciplinary records
  • Reference to staff appraisals

Staff cannot be made redundant because of:

  • Marital status
  • Sexual preference
  • Disability
  • Religion, as well as other protected characteristics under the Equality Act
  • Trade union membership
  • Part-time hours
  • Whistleblowing

Where possible, businesses should seek volunteers as a way of avoiding compulsory redundancies and reducing the risk of claims. Businesses should be careful not to offer voluntary redundancy packages only to older employees. And likewise, young people should not be the only group selected.

Once decisions are taken, you must notify staff as soon as possible, allowing people time to appeal. You do not have to accept everyone who volunteered for redundancy.

Settlement Agreements

Settlement Agreements (previously known as Compromise Agreements) can be used to help streamline the traditional redundancy process.

After a business has first warned of possible redundancies, an employer can act swiftly to avoid or suspend the start of the process by presenting Settlement Agreements to their staff. These are documents presented to employees, which, if signed, are similar to a ‘job divorce’.

A Settlement Agreement, drafted correctly, can be attractive to both parties.

For the employer, it saves time and has the added advantage of protecting it against potential claims from the departing employee, which could end up at employment tribunal or county court. And from the perspective of the departing employee, they also avoid the time and anxiety associated with a redundancy procedure, and usually benefit from an inducement. This is usually, but not always, a financial incentive for them to accept the settlement deal. An employment reference is often also included, which can help employees to find a new job once they leave, if that is their aim.

Of course, employees can reject Settlement Agreements. For example, they may want to be actively involved in the decisions made about their future, or they may doubt the reason for their redundancy, or want to challenge the decision. In such cases, the alternative of the traditional redundancy process should always be provided and the employee should be given freedom of choice. In these circumstances, a Settlement Agreement may need to be considered by an independent lawyer who can scrutinise it and advise the employee on the consequences, both of accepting the deal or rejecting it.

The employer would be expected to contribute towards the cost of the lawyer, where one is commissioned.

For legal advice about Redundancy or Settlement Agreements, contact Solicitor Graham Shannon on 0191 323 3932 or at [email protected].