Have you been offered a Settlement Agreement as result of the Coronavirus?

Posted on 18th June 2020

With the UK Government announcing further relaxation of lockdown rules over the coming weeks, individuals, businesses and employers are attempting to adapt to new rules and regulations.

Over the last few months, approximately 8.7 million people in the UK have been furloughed as of May 2020. We answer frequently asked questions about the furlough scheme on our FAQs page.

Following recent government announcements regarding the Coronavirus Job Retention Scheme, many employers and employees are now preparing to return to work. However, the pandemic has had a dramatic impact on businesses, and sadly in many sectors, redundancies are now unavoidable.

Businesses and employers are adapting to a new way of working, and many are facing having to make the difficult decision to let employees go. As a result, we are seeing a significant rise in individuals being offered Settlement Agreements by employers.

What is a Settlement Agreement?

A Settlement Agreement is a written agreement between an employer and employee (including former employee). They were previously referred to as Compromise Agreements. Settlement Agreements are often 10-20 plus pages long and are usually worded in dense legal language. Not surprisingly, they can be confusing and difficult to make sense of.

Commonly, under the terms of a Settlement Agreement, the employer will agree to pay the employee a sum of money, in return for the employee signing the Agreement.

Why might I be offered a Settlement Agreement?

Your employer may give you a Settlement Agreement if you have been told your employment will come to an end.

Settlement Agreements can be used to conclude any workplace dispute. They are also commonly offered to employees in the following circumstances:

  • You are informed your role is at risk of redundancy;
  • Where your employer has raised concerns about your performance;
  • You are on long term sickness absence;
  • There has been a transfer of a business; and
  • To settle a grievance.

The essence of a Settlement Agreement is that it allows both parties a ‘clean break’. The employer can pay the employee a sum of money and feel assured that they will not face any further requests for payment, therefore allowing it to ‘draw a line’ under the matter. Similarly, such an agreement can be beneficial to the employee, as it will enable them to move on with a sense of ‘closure’.

What happens if I receive a Settlement Agreement

Under the terms of most Settlement Agreements, you will typically receive a payment. This may be referred to as a ‘termination payment’, ‘settlement payment’ or even ‘compensation’. In exchange for this financial incentive, you agree to waive your rights to bring claims against your former employer, including claims for:

  • Unfair dismissal
  • Breach of contract
  • Discrimination
  • Personal injury claims.

You will only receive the financial incentive if you sign the Settlement Agreement.

Is a Settlement Agreement legally binding?

Once signed by all parties, the Settlement Agreement becomes legally binding. It is therefore essential to ensure that all issues, including those concerning outstanding pay or unpaid expenses, are resolved before the agreement is signed.

You may also want to come to a mutual agreement on certain non-financial matters, such as:

  • The provision of a reference to a prospective employer
  • What will happen to any grievance raised by you
  • On-going disciplinary action against you
  • The status of any data subject access request submitted by you.

The parties usually also seek some conclusion on these matters. It is therefore vital to check that what you have agreed to is reflected in the agreement.

A Settlement Agreement is not binding until you obtain independent legal advice on the terms. For this reason, most employers will contribute toward your legal costs. However, this sum is often limited and is usually just enough to cover a review of the agreement and advice on the terms of the arrangement.

It is usually a good idea to obtain advice from a lawyer on whether or not the settlement is a good value, particularly if you have concerns about unfairness or discrimination in the redundancy process, for example.

If the advice given is that the financial sum offered does not adequately compensate you, this will put you in a stronger position to consider your options, including whether to negotiate an increase in the settlement sum offered. We frequently consult an addition to settlement sums on behalf of clients.

How much will you receive?

How much compensation you receive will depend on the background and circumstances of the Settlement Agreement. Where you are offered a settlement payment in a redundancy situation, you should expect the settlement sum to include your contractual entitlement (such as notice pay and accrued annual leave) as well as any statuary redundancy payment you are entitled to.

Your statutory redundancy entitlement is based on your salary, age and the number of years you have worked for the employer. You can work this out by using the government calculator.

Additionally, the termination payment tends to include some form of compensation for the loss of your job.

Not all employees will be offered a Settlement Agreement and compensation payment on being made redundant. Where the employer is confident that there is a genuine redundancy situation and an employee does not have a realistic prospect of unfair dismissal or other legal claims, the employer is not bound to pay any more than the employee’s contractual and statutory entitlement. In such circumstances, the employer may make the payments without offering a Settlement Agreement.

Can the Settlement Agreement be negotiated?

The settlement sum offered under the agreement may be unattractive to you. If this is the case, you can make a counteroffer and attempt to negotiate a better deal with your employer. But before doing so, it is crucial to determine whether there is an incentive for the employer to increase the offer – you do not want to refuse an offer and put forward a counteroffer only to have the initial offer withdrawn.

Generally, you will be in a stronger position to negotiate an enhanced offer if you have possible legal claims and can argue that the value of these claims is more than what is being offered. For example, if you have a potential discrimination claim, it may be beneficial for the employer to make a better settlement offer, as this will avoid the employee issuing a legal claim. This is something a lawyer can advise you on.

How to get legal advice?

In the current climate, individuals may be of the view that they will be unable to obtain legal advice. However, this is not true. Our solicitors are fully equipped to assist employees with their Settlement Agreements. They are continuing to advise employees on the terms of their agreements as well as negotiating better conditions for our clients.

Settlement Agreements can be signed electronically and returned to your employer. As such, the inability to meet face to face in the current climate will not hinder this process.

If you are offered a Settlement Agreement and would like a legal advice, please call our dedicated employment team on 0808 231 6369 or send them an email.

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