There have been many large scale redundancies and hiring freezes in 2016 due to on going economic instability and Brexit. As a result of this, we have seen an increased demand in employees requesting advice on their settlement agreements. In the majority of cases, the reason for the settlement agreement is redundancy.
A redundancy situation occurs where:
- the employer’s business, or part of the business, has ceased to operate; and/or
- the employer’s business has moved to a different place; and/or
- the business’s need for work of a particular type to be done has ceased or diminished.
In redundancy situations, it is always important to remember that it is the role, not the person who is made redundant. Sometimes employees do take redundancy personally and see it as part of a discriminatory agenda or one related to whistleblowing. It is, therefore, important that where an employee is made redundant, the employer undertakes the redundancy process fairly, transparently and honestly.
An employee being made redundant must be given notice or paid in lieu of the notice period in their contract of employment. Anyone with over two years’ service will also qualify for statutory redundancy pay.
However, separately to notice pay and statutory redundancy pay, some employers may offer an enhanced redundancy payment subject to an employee signing a settlement agreement. Any enhanced redundancy payment can be paid to the employee tax free up to £30,000.
A settlement agreement is an agreement in which an employee agrees to waive their employment claims against their employer in return for receiving an enhanced redundancy payment. A settlement agreement is only valid if the employee obtains legal advice on it beforehand. The settlement agreement will also contain provisions about how the employee’s exit is going to be managed. For example, will they undertake any handover or will an announcement be made? What about restrictive covenants?
As part of exit discussions, it will also be important to ascertain if the employee has any deferred remuneration which will vest over a period of years under LTIPs or other employee schemes. What happens in the event of redundancy will be governed by the plans of the relevant scheme. Most plans treat employees who have been made redundant as good leavers, but this will need to be checked.
Finally, a regular bone of contention during settlement agreement negotiations is whether a departing redundant employee is entitled to receipt of their bonus for the financial year. This will depend on the wording of the employment contract and any other agreement regarding payment of bonuses.