Been Offered a Settlement Agreement whilst on Furlough Leave?

Settlement agreement whilst on furlough

Have you been offered a settlement agreement, whilst on furlough leave?

In March 2020, the government introduced the concept of ‘furlough leave’, more formally known as the Coronavirus Job Retention Scheme. The aim was to avoid redundancies by part funding employees’ wages if

  • it’s not safe for them to go in to the workplace and
  • they can’t work from home.

Sadly, for many employees, it has not been possible for the employer to avoid redundancies.

However, some employers have been offering employees a settlement agreement as an alternative to redundancy.

This article explores some specific issues that may arise if your employer offers you a settlement package in the context of furlough leave and COVID-19.

Why have you been offered a settlement agreement?

The purpose of a settlement agreement is to prevent you from bringing an employment tribunal claim against your employer. This may be, for example, a claim for unfair dismissal if your employer doesn’t follow a fair procedure.

Sometimes, employers offer an exit package in order to avoid going through a lengthy redundancy consultation procedure. This is particularly true if they are making a large number of redundancies in a short space of time.

The consultation period could be up to 45 days if they’re making more than 100 redundant. Conducting a consultation period during the Coronavirus crisis, whilst many staff are on furlough leave and maintaining social distancing, could be extremely problematic.

However, if you sign a settlement agreement as an alternative to being made redundant, there is no need to go through the consultation process. Often employers will offer you an enhanced redundancy payment if you agree to the settlement package. This is a ‘win win’ situation. You get more money, whilst your employer avoids the time, pressure and cost of pursuing a redundancy process.

How much should you expect?

You should expect any settlement offer to be at least what you would have been paid if you’d been made redundant.

For example, it should include your redundancy entitlement, which is based on:

  • a week’s pay (based on your full salary, rather than the furlough rate);
  • your age; and
  • your length of service.

The statutory redundancy payment is always tax free. Use the government’s redundancy pay calculator to find out how much you’re entitled to.

In addition, the financial settlement should include some kind of termination payment. The amount of this depends on:

  • Your salary
  • Whether your employer feels vulnerable to a claim
  • The extent to which your employer feels generous

If it is a clear redundancy situation and you have no realistic prospect of an unfair dismissal claim against your employer, there isn’t much incentive for your employer to pay you more money. However, employers often offer an extra payment tax free as an incentive to bring things to an early conclusion.

For more information about how to calculate a realistic financial package, read this article about how much you should expect in a settlement agreement.

Should you accept the financial offer?

A settlement agreement only comes into effect if both the employer and the employee agree to it. This means that you can refuse the offer if you want to. Your employer should give you at least 10 days to decide whether or not to accept.

The effect of refusing it is that you are still employed until you or your employer brings your employment to an end.

If your employer has signaled to you that the offer was an alternative to redundancy, then the next stage if you refuse would probably be for your employer to begin the redundancy consultation process.

Think about whether you’d be better off being made redundant. When doing the calculations, take into account the following:

  • Whether you will be on the furlough rate or full contractual salary during the redundancy process
  • The length of any redundancy consultation procedure. This could be several weeks if your employer is making large scale redundancies. However, it may be as short as 7-10 days if there are less than 20 being made redundant
  • The amount of redundancy payment you’ll get if you’re made redundant instead of agreeing a settlement agreement
  • The opportunity to claim unfair dismissal if you’re unhappy with being made redundant (you lose this right if you sign a settlement agreement)
  • The rate of pay you will receive during your notice period or for any payment in lieu of notice (it may be that you’ll only receive the furlough rate if you don’t sign a settlement agreement)

You may need to clarify the answers to some of these questions with your employer before deciding what to do.

Can you negotiate?

You may be able to achieve a better settlement agreement through negotiation.

Although the current settlement offer may not be very attractive, you could make a counter-offer. However, you need to consider what incentive there is for your employer to pay you more money.

Negotiating on a legal basis

In some circumstances, you may have a solid legal case against your employer. For example, you may be able to claim compensation if:

  • you believe it’s not a genuine redundancy situation
  • you feel you’re the victim of discrimination or
  • you’re being unfairly selected for redundancy

If this applies, you could warn your employer that if they don’t offer you a better settlement package, you will take legal action.

However, if there are no clear grounds to bring a claim and your employer has acted fairly and within the law, then you may need to negotiate on a different basis.

Negotiating on the basis of good will

If your employer has done things correctly, you probably won’t be able to insist on a higher payment. However, you may still be able to negotiate on the basis of good will. Rather than threatening legal action, you could ask your employer to pay you more money because:

  • you’ve been a loyal employee
  • you’ve contributed a lot to the business
  • the redundancy puts you and your family in a difficult situation

This approach is more likely to be effective if you’ve had a good relationship with your employer.

Ask for a protected conversation

Whichever way you choose to negotiate, you should ask for a protected conversation. This enables both you and your employer to talk freely without worrying that your words could be used as evidence in a potential tribunal claim.

An employer is allowed to have a protected conversation with an employee whilst on furlough leave. Although this will be more difficult with social distancing, there’s no reason why it can’t be done in a video conference call or even by telephone or email.

How do you get legal advice on your settlement agreement whilst social distancing?

The law requires you to get legal advice before agreeing the settlement package. Otherwise, it’s not legally binding. But how do you do that whilst social distancing?

Traditionally, clients have expected to meet with their solicitor face to face. However, even before the Coronavirus crisis, many solicitors were providing legal advice remotely, often by telephone and email.

There’s simply no need to visit a solicitor’s office to get legal advice on a settlement agreement. Provided you can obtain an electronic copy of the document, your solicitor can give you all the legal advice you need by telephone and email.

Although your solicitor will need to sign a certificate to confirm that the advice has been given, this can also be done electronically. Although some people feel more comfortable with a signed paper copy, an electronic signature is equally valid.

This means that you can complete the whole process and get all the legal advice you need without leaving your home.

Would You Like a Free Consultation About Your Settlement Agreement?

If you’ve received an offer of a settlement as an alternative to redundancy, you’ll need to make sure you receive legal advice on it.

We advise clients throughout the UK. Call us now for a free consultation.

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