Losing your job is tough at the best of times. But it’s exceptionally hard as the economy plunges into the fallout of the coronavirus crisis.
Despite the Chancellor extending the Government’s job retention scheme until October, job losses are likely to be significant.
And while employers are making furloughed employees redundant, which is allowed under the rules of the scheme, the usual redundancy consultation process applies.
So in cases where employers can afford to offer enhanced payments on top of statutory redundancy pay, particularly to senior executives and those in professional roles, staff are instead being offered settlement agreements.
In theory, a settlement agreement means a swift exit and saves the employer having to manage a redundancy consultation process. But before you accept, make sure you negotiate the best deal possible.
If you’re pulled into a meeting and told your job is at risk it’s easy to panic. (And that panic may be super-charged if your boss breaks the news on Zoom, while you’re in the kitchen home-schooling your children). But it’s important to make a note of what was said. This can help when you’re deciding whether to accept the deal.
What is a settlement agreement?
It is a legally binding document that sets out the full terms of a settlement between an employer and an employee. They vary but typically the employee receives an enhanced payment. In return, the employee agrees not to bring claims against an employer. They also often include a confidentially or “gagging” clause (so you can’t bad mouth your employer) and details such as any agreed reference from your employer.
Settlement agreements are used as a quick way to end employment, as well as a final sign-off for redundancies, or as an alternative for an employee going down a grievance or disciplinary procedure.
Tax-free lump sum
The main reason that employees accept a deal is the first £30,000 of the settlement lump sum is tax-free. The amount may be negotiable so it’s worth making a counter-offer. But don’t push your luck: ask for too much and your employer is unlikely to engage in a negotiation.
What if you’re furloughed?
If you think the reasons for losing your job are fair – that is, you’re not being discriminated against, and there’s a clear business case for the job loss – ask for your termination date to be put back as far as possible. The job retention scheme has been extended until the end of October, although employers are expected to have to contribute towards costs after July. So, if your employer is willing to keep you furloughed, it gives you an income for longer – of at least 80pc of your salary, capped at £2,500. You can still sign the settlement agreement and take the lump sum, but you’ll have some extra money for a few months.
Use your notice period to get another job
You can potentially get another job quicker if you ask not to have to work your notice. This can be written into the agreement so you can be paid in lieu of notice, freeing you up to be employed elsewhere.
Many employers are open to reasonable discussions and speaking to your manager or HR department provides the best outcome. If you don’t think it’s a fair situation – you suspect you’re being replaced, for example, you need to raise the issue (and possibly consult an employment solicitor to assess your chances of a claim). But if you do accept the reasons, be pragmatic and simply ask to agree a better deal.
When you’re negotiating, you’re often making the most of your loyal service and what you think the company can reasonably offer. But your deal should include: an agreed reference; payment for holidays accrued; any contractual benefits like bonuses and shares. It’s worth thinking about any extras – for example, if you have mortgage or income protection insurance, see how a settlement agreement may impact on that. Ask for a clause saying the company will cooperate with the insurer’s requests for information on the reasons your employment ended.
What about legal fees?
Settlement agreements are only legally binding if the employee has received independent legal advice on the terms and effect of the agreement. It is common practice for employers to pay a reasonable sum to cover this.
Joanne O’Connell is editor of EmploymentSolicitor.com