Redundancy and Settlement Agreements – An employee perspective

Introduction

Covid-19 has already had a significant impact on a lot of employees, some of whom have unfortunately already lost their jobs.

Whilst the Coronavirus Job Retention Scheme (commonly known as the furlough scheme) will have saved further job losses in the short term, as the scheme starts to wind down, employers will again look at their staffing requirements in the post lockdown economy. With reduced work levels and the requirements for social distancing there are likely to be further job losses. With reduced work levels and the requirements for social distancing there are likely to be further job losses.

I have been told I am at risk of being made redundant, what should I do?

Being at risk of being made redundant is stressful. However, try not to let your emotions take over. Where possible, make a note of what your employer is telling you, don’t be afraid to ask questions and take some time to consider what you are being told. You should not be forced into responding to or accepting anything on the spot.

Being at risk of being made redundant does not necessarily mean that you will necessarily be made redundant. It is all part of a process which is explained in more detail below. Being at risk simply means that there is a chance that you will be made redundant.

How does the redundancy process work?

If an employer decides that there is a need to make employees redundant, the law requires the employer to follow a process which can be summarised as follows:

1. Identify the employees who are at risk of redundancy;
2. Communicate with the all of the employees at risk of redundancy to let them know that they are at risk, and to discuss with them what information/criteria the employer is going to use in deciding who is to be made redundant;
3. Apply the criteria to determine who is to be made redundant, and meet with all of the employees at risk of redundancy on an individual basis to discuss the ongoing process (including to discuss whether that employee is to be made redundant or not); and
4. Consider whether there is another job within the organisation that is suitable for an employee who is going to be made redundant. If an employee refuses such an offer of alternative employment, it may affect their entitlement to statutory redundancy pay.

If a process similar to that above is not followed, then the employer will potentially be leaving itself open to a claim that the dismissal was unfair.

I have been made redundant – what am I entitled to?

Where you have been made redundant, the employer still needs to abide by the terms of your contract and the law. Therefore, you may be entitled to receive some or all of the following:

Statutory Redundancy Payment

If you have at least two years’ service, you are entitled by law to a payment when dismissed by way of redundancy. The amount of a statutory redundancy payment is calculated by a formula which takes into account how long you have worked for your employer, your age and your weekly wage.

Where your employer is insolvent in certain circumstances, you may be able to claim your statutory redundancy payment from the Government.

Contractual Redundancy Payment

Some employers have a policy which states that in the case of redundancy, employees will be entitled to a redundancy payment which is higher than the statutory redundancy payment. The right to such a payment may be guaranteed in the employment contract, but in most cases the employment contract will simply state that it is at the discretion of the employer as to whether such an enhanced payment is to be made.

Notice Pay

If you are made redundant, you are still entitled to notice of dismissal. The notice which your employer is required to give you may be set out in your contract of employment.

The law sets out what notice you are entitled to receive which in basic terms, is equivalent to one week for each complete year worked by you, up to a maximum of 12 weeks. Your employment contract may set out a longer notice period, but it cannot be less.

Your employer can require you to work out your notice period, but it is common for the employee to be paid a lump sum in lieu of working that period.

Pay in Lieu of Holiday

Your employer must also make an additional payment in respect of any unused holiday entitlement.

I have been asked to sign a settlement agreement – What is this?

A settlement agreement is a legally binding settlement between an employer and employee.

From your employer’s point of view, the most important part of a settlement agreement is that in it, you will be required to waive all claims you have against your employer in relation to your employment or its termination. A settlement agreement will commonly also contain other obligations on you such as not making disparaging remarks about the employer, returning employer property and keeping information confidential.

There is no legal obligation for you to sign a settlement agreement when your employment is terminating. However, an employer will commonly include a lump sum payment in the settlement agreement as an inducement to sign it (some of which may be tax free). Other inducements include an agreed reference.

How is the lump sum calculated & how does it compared to my colleagues?

This is a common concern raised by employees.

Whilst the level of payment may differ between businesses, often an employer has a formula or method for calculating the payment due.

You will need to be clear as to how the total amount being offered to you in a settlement agreement has been calculated. Commonly the settlement agreement will set out each payment separately, but your employer should be able to provide you with a breakdown if you are unclear.

I am happy to sign the settlement agreement, why do I need legal advice?

For a settlement agreement to be legally binding, you will be required to take independent legal advice on its terms. Larger employers will usually provide a list of law firms that employees have gone to in the past, but there is no requirement to use one of them. You are free to choose your own solicitor.

As legal advice is required, a settlement agreement will often provide for your employer to make a contribution towards your legal fees. The level of the contribution varies, but the firm you instruct should be able to indicate their likely fee for advising you on the settlement agreement before providing you with the advice.

If you have any employment law queries, please do not hesitate to contact David Nathan at [email protected] or on 020 7822 2247, or  Ross Waldram on [email protected] or 0207 822 2236.

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