Top 10 strategies for employers handling redundancies

settle_your_differencesIntroduction

In order to remain commercially competitive it is important businesses review their staffing needs on a regular basis. Even where a business is successful, it is inevitable, that redeployment of labour and redundancies will sometimes be necessary based on prevailing market conditions. This is particularly true in the uncertain times in which we live as a result of Brexit. It is vital if you are considering reducing staff head count due to the prevailing economic circumstances that such redundancies are handled carefully to avoid unanticipated liabilities for your organisation.

Here at iLaw we have over 20 years’ of experience guiding employers through redundancy processes. Here are our top ten tips for employers faced with having to make what we understand and appreciate are difficult decisions:

1. Avoid having to make redundancies in the first place

Developing an effective strategy for human resource planning can help manage current and long term staff needs and avoid the need to make redundancies.

2. Make sure there are good grounds for making redundancies

Even if an organisation has an effective HR strategy in place, sometimes having to make redundancies is inevitable. It is important when considering making redundancies that you are able to justify the grounds as a matter to law to avoid claims for unfair dismissal.

According to the Employment Rights Act 1996 a redundancy situation arises when:

  • the employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was so employed; or
  • the employer has ceased, or intends to cease, to carry on the business in the place where the employee was so employed; or
  • the requirements of the business for employees to carry out work of a particular kind has ceased or diminished or are expected to cease or diminish; or
  • the requirements of the business for the employees to carry out work of a particular kind, in the place where they were so employed, has ceased or diminished or are expected to cease or diminish.

3. Adopt a fair selection criterion

The selection criteria for making an individual employee redundant should be fair, objective and consistent. By ensuring this,  this avoids any suggestion the employee has been unfairly selected for redundancy.

As far as possible, objective criteria, precisely defined and capable of being applied in an independent way, should be used. The purpose of having objective criteria is to ensure that employees are not unfairly selected for redundancy. Examples of such a compulsory criteria are:

  • Skills or experience;
  • Standard of work performance or aptitude for work;
  • Attendance or disciplinary record.

4. Make sure in applying the selection criteria it is not tainted by discrimination

The chosen criteria must be consistently applied by all employers irrespective of size. The employer should also ensure that in applying the criteria their decision making is not tainted by discrimination in any way e.g. disability in the context of work attendance and age in the context of experience (the argument being younger employees may have less experience by virtue of their age but that does not mean they do not have the skills and capabilities to do the job in question).

5. Consider voluntary redundancies

One acceptable method in terms of a non-compulsory selection criteria is for employees to volunteer to be considered for redundancy and for the employer to select from the list of volunteers those employees who are to be dismissed.

This has the advantage of avoiding the need for compulsory redundancies, with a less demoralising and disruptive effect on the workforce. It is not uncommon to offer enhanced redundancy payments as an incentive to attract people to leave. In situations where the number of volunteers exceeds requirements, employers should be alert to the potential reaction of some employees not selected and consider in advance how best to deal with this.

The disadvantage of going down the voluntary redundancy route is that sometimes those volunteering for redundancy may be the employees with the superior skills and capabilities (as a result of which they are more confident of obtaining alternative employment) and therefore the ones the employer would prefer to retain.

6. Follow a fair redundancy procedure

Put into place an effective redundancy policy that sets out the redundancy process step by step. This will help employees understand the procedure that will be followed before it takes place. It also provides employers with the structure and framework to be followed. Fair and appropriate procedures need to be followed to avoid unanticipated liabilities for unfair dismissal even where there are good grounds for making a redundancy.

The essence of a fair redundancy procedure established by UK employment case law is:

  • Warning;
  • Consultation; and
  • Notice

Dealing with each of these three limbs in turn:

7. Warning

The employer should meet with the employee and give them warning that their role has been POTENTALLY identified for redundancy explaining the underlying grounds. It is just that, that the role is potentially redundant. It is important at this stage not to say anything that would suggest the employer has made the decision to make the position redundant terminate the employee’s employment. To do so would risk prejudicing the entire consultation process rendering the dismissal potentially unfair and opening the employer to a claim.

The employer should follow up the meeting with a letter to the employee confirming the following:

  • The reasons for having to make redundancies; and
  • Stating the employee’s role has been identified as a result as being potentially redundant; and
  • Explaining the consultation process that will follow with dates for the next meeting to take place as part of that process.

8. Consultation

Consultation should take place as soon as possible following the initial meeting at which warning of potential redundancy is given. The purpose of consultation is for both sides to explore the available options. It presents an opportunity for the employee to pitch ideas as to how the redundancy can be avoided. For the employer it presents an opportunity to listen to such ideas as well as to identify whether there is a suitable alternative role for the affected employee(s), so as to avoid having to give notice of termination of employment at the end of the consultation period.

NB employers who propose to dismiss as redundant 20 or more employees at one establishment over a period of 90 days or less have a statutory duty to consult representatives of any recognised independent trade union, or if no trade union is recognised, other elected employees. This is in addition to the employer’s obligations to consult individually with the employees.

9. Notice

At the end of the consultation period (and not before), if employer and employee have not been able to identify a way of avoiding the redundancy crystallising or suitable alternative employment for the employee then the employer should meet with the employee again to confirm the redundancy is confirmed and give notice of termination of employment. The employer should follow up the meeting with a letter confirming in writing the following:

  • Confirmation of the redundancy; and
  • The planned date for termination of employment; and
  • The employee’s entitlement to a redundancy payment whether under statute (assuming the employee meets the 2 year qualifying criteria for such a payment) or under the employer’s redundancy policy if it includes provision for an enhanced redundancy payment; and
  • The employee’s contractual entitlements on termination of employment including (but not limited to) the following elements:
  • Notice or payment in lieu of notice if the employer does not want the employee to work their notice period; and
  • Accrued but untaken holiday entitlement due up to the date of termination of employment; and
  • Any commission earnt or bonus due on termination in accordance with the employer’s scheme rules

This list is not intended to be exhaustive.  You should refer to the employee’s contract of employment to check the full extent of the financial entitlements due on termination of employment.

10. Consider offering a settlement agreement

Settlement agreements offer employers a clean and effective means of dealing an employee being made redundant providing protection against the employee seeking to claim they have been unfairly dismissed following termination of employment. Typically the employee is offered an enhanced redundancy payment in return for waiving any legal claims they may have against their employer arising out of their employment and its termination. For more about settlement agreements take a look at our article Settlement agreements: 5 top strategies and tips for employers.

Final thoughts

Handled properly, following the tips contained in this article, a redundancy process need not be so daunting for an employer. Are you facing a redundancy situation with your workforce? Why not talk to our dedicated team of employment lawyers here at iLaw?  We can help guide you through the exercise so that it runs smoothly and does not leave you open to the exposure of litigation from affected employees.

Please call the author of this article, Julian Cox who heads iLaw’s employment team to discuss on 0207 489 2059 or e mail him at julian.cox@ilaw.co.uk.

 

 

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The Employee’s guide to settlement agreements – what you need to know

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Introduction

As an employee, being presented with a settlement agreement to consider by your employer can be a daunting experience.

It is inevitable that issues surrounding employment relationships arise in the work place – employers may be discontented with an employee’s work performance or behaviour whilst employees may feel unhappy with the way they are being treated or the work they are being asked to do.

Such problems may be resolved through the use of performance management, informal and formal disciplinary or grievance procedures, workplace mediation or Acas conciliation.

Settlement agreements offer an alternative tool to deal with workplace problems. Most commonly they are used by employers to help end an employment relationship in a mutually acceptable way.

Here are some of the main questions to consider before making a decision whether to sign a settlement agreement or not:

What is a settlement agreement?

Settlement agreements, formerly known as compromise agreements, are documents which set out the terms and conditions agreed by those involved (employer and employee) when they agree to waive their right to bring a claim covered by the agreement – for example, the right to make a claim to an employment tribunal or court.

Each settlement agreement will vary depending on the particular circumstances but usually it will include clauses that deal with:

  •  the particular claims to be settled
  • the financial payments you will receive and how they will be treated for tax
  • confidentiality
  • non-bad mouthing provisions
  • post termination restrictions
  • any agreed reference from your employer

Who can enter into settlement agreements?

Normally it is an employer and employee (or former employee) who are the contracting parties to a settlement agreement.

They can also be agreed between an employer and someone other than an employee (or former employee) who may be able to bring a claim to an employment tribunal – for example an unsuccessful job candidate complaining about discrimination or a worker with a claim for holiday pay.

A settlement agreement cannot be signed by groups of individuals.

What’s the difference between a settlement agreement and a compromise agreement?

The government renamed compromise agreements settlement agreements at the end of July 2013.

Whilst the nature and structure of the agreements themselves remains essentially the same, the new regime introduced an element of pre-termination negotiations – also known as a protected conversation.

Protected conversations are a way of encouraging employers to have full and frank conversations with employees about terminating their contracts. Anything that is said in this discussion is protected as being without prejudice and therefore cannot be used by either party against the other in the context of certain claims such as unfair dismissal.

There are exceptions: such conversations are not considered legally protected in discrimination, whistleblowing or other automatically unfair dismissal claims for example. This means that the negotiations can no longer be treated as being essentially ‘off the record’ if either party behaves improperly during the process. So, in these cases, what was said during the protected conversation could come out into the open.

For example, if an employer suggests to a pregnant woman that she might want to consider leaving their employment in return for a compensation package, such a conversation would not be protected if the employee believes that this offer has only been made because she is pregnant

What should I do first?

When you are invited into a meeting and asked to leave your job in return for signing a settlement agreement, it can be quite a shock. It can be hard to recall exactly what was said later on.

As soon as you can, write down as detailed a note as possible, setting out precisely what happened and what was said during the meeting. These contemporaneous notes can help you give accurate evidence in the event that you were to decide not to sign the settlement agreement in its original form and want to negotiate; or bring a claim against your employer in the event that an agreement cannot be reached.

Why do I need to take independent legal advice on a settlement agreement?

A settlement agreement will only become binding once you have received independent legal advice on its terms and effect from a solicitor or other qualifying adviser.

The adviser ought to provide you with a signed certificate to confirm they have provided this advice which you will need to give to your employer at the same time as you sign and return the agreement.

As well as advising you on the terms and effect of the settlement agreement, the adviser should consider with you whether you have any grounds for a claim against your employer. They should also discuss with you whether you are getting a good all round deal in the circumstances.

Who pays for the advice?

Under the terms of the settlement agreement, your employer usually to contribute an amount up to a certain level (typically between  £350 and 500 + VAT) towards your legal fees for having to obtain independent legal advice regarding the meaning and effect of your settlement agreement.

Ordinarily therefore you will not have to pay anything towards your adviser’s fees, assuming you are happy with the terms of the settlement agreement being offered and do not wish to seek any amendments. The adviser will send their invoice for their professional legal services for payment directly by your employer as provided for in the settlement agreement. Provided that your employer honors their contractual obligation under the settlement agreement and pays the invoice there will be nothing for you to pay.

Where you are dissatisfied with the terms of the settlement agreement being offered and want your adviser to act on your behalf to try to negotiate an increased level of compensation typically you will be responsible for your adviser’s additional fees involved in your adviser carrying out this work on your behalf, unless your employer agrees to pay these. Typically also your adviser will try though to pass on their fees for carrying out such additional work to your employer if at all possible by seeking an increase to the employer’s costs contribution provided for in the settlement agreement.

 How much ought my employer to be offering me?

In deciding how much money you ought to be offered, the following considerations are relevant:

  • what your contract of employment states regarding your financial entitlements such as remuneration, notice period and untaken paid annual leave. These need to be reflected in settlement agreement
  • your length of employment
  •  your statutory redundancy entitlement
  •  any enhanced redundancy pay scheme in place
  •  any entitlement to bonus or commission
  • the length of time it may take to resolve the problem if a settlement is not reached
  • how difficult it would be for your employer to fill the post
  • how long it might take you to find another job
  • the reasons for offering a settlement
  • the possible liabilities and costs involved in dealing with any potential tribunal or court claim you may bring if a mutually agreeable settlement cannot be achieved.

Do I have to pay tax on the money I receive?

This will depend on the precise nature of the payment.

Ordinarily, any contractual payment made to you, such as salary, bonus and paid holiday entitlement will be subject to tax in the normal way. Any redundancy payment (whether statutory or enhanced), or payment genuinely representing compensation for loss of employment, injury to feelings or damages can be paid tax exempt up to a value of £30,000.

Separate specialist tax advice may need to be obtained in relation to this complex, technical area.

How much time should I be given to consider the settlement agreement?

You ought to be given a reasonable time to consider an offer of a settlement agreement. What is reasonable will depend on the circumstances of each case, including what both parties might agree is a reasonable time.

As a general rule, a minimum period of 10 calendar days should be allowed to consider the proposed formal written terms of a settlement agreement and to receive independent advice, unless the parties agree otherwise.

The period of ten calendar days is a specific requirement outlined in the Acas Code of Practice on Settlement Agreements.

 The failure to adhere to this timetable may mean that the settlement discussions can be referred to as evidence in a subsequent unfair dismissal claim before an employment tribunal.

It can be helpful to agree a timetable for discussions which allows parties time to take advice and to consider offers, whilst also avoiding any unnecessary delays.

Do I have to sign the settlement agreement?

 The short answer to this question is no. Entering into a settlement agreement is something that is entirely voluntary – they include terms and conditions that are mutually agreed, and parties do not have to enter into them if they do not wish to do so.

Final agreement is often reached through a process of discussion and negotiation. You do not have to accept the terms initially offered – there may be scope for negotiation during which both sides make offers and counter offers.

Your adviser can also help you negotiate a better deal, which may include an increased financial pay-out.

If you believe you will be facing a period of unemployment, you will want to make sure you are able to meet your household living expenses until you find another job. One of the considerations you need to make is whether the money that’s being offered is enough in the circumstances.

Once both parties have signed the settlement agreement you have a binding contract meaning essentially there is no going back. This is why the legislation insists that you take independent legal advice.

If you do not sign the agreement, then you preserve your full rights to make a claim against your employer. You need to be mindful though there are strict time limits for bringing a tribunal claim if you do decide to do so.

iLaw – for specialist settlement agreement advice

 If your employer has offered you a settlement agreement or you believe they are in the process of making such an offer then we can help. Please do get in touch with us here

 Why us?

At iLaw we provide settlement agreement advice you can trust.

We offer a fast, efficient settlement agreement advice aimed at achieving your objectives.

Our focus is on meeting your particular needs – whether you are satisfied with what you are being offered financially and simply require standard advice regarding the terms and effect of your settlement agreement (formerly known as compromise agreements) you are obliged to take by law; or are looking for additional advice and assistance in order to try to negotiate an exit package with your employer on preferential, financial terms.

Key benefits of our service

Cost guarantee. We only charge the amount your employer is prepared to contribute towards your legal fees for reviewing the settlement agreement and providing advice as to its terms and effect.

  • We are fast and efficient. We appreciate time is of the essence when dealing with settlement agreements. We aim to provide same day appointments wherever possible, subject to availability.
  •  We also endeavor to contact your employer immediately following on from our meeting with any amendments sought to the settlement agreement.
  • We understand what a difficult and stressful time it can be for you faced with being offered a settlement agreement and endeavor to provide reassurance and support every step of the way.
  • We act for clients in London and across the UK. We are conveniently located in the heart of London for clients working in the City and central London. For clients located outside of London we can provide advice via telephone or video conferencing such as Skype.  

Contact us

Call us now on 0845 468 0082 for a FREE initial telephone consultation or e mail your enquiry to Julian Cox, Head of Employment at iLaw on julian.cox@ilaw.co.uk

http://www.ilaw.co.uk/settlement-agreement-specialist-advice/