Redundancy and Settlement Agreements during a Cost of Living Crisis

GEPP

7 December 2022

By Lucy Wright

With inflation rates high and energy bills soaring, the cost of living crisis is causing a particularly challenging trading environment for many businesses.

Many businesses may be seeing a fall in consumer spending as families feel the pinch this winter. This, combined with raised interest rates making borrowing more expensive, will be forcing many businesses to consider cost saving measures.

Redundancies

One way in which businesses may consider saving costs is through redundancies. Importantly, a business can only make redundancies in the following situations:

  • Business closure (ie, closure of the business altogether).
  • Workplace closure (ie, closure of one of several sites, or relocation to a new site).
  • Diminished requirements of the business for employees to do work of a particular kind.

As such, the costs of living crisis in and of itself will not be a justification to make employees redundant. Rather, a business will need to show that as a result, there is a reduction in the requirement for employees to do work of a particular kind.

In the event a business establishes that redundancies are necessary, they must follow a fair redundancy procedure before deciding which staff to make redundant.  For example, there must be a fair selection process and a consultation period. If an employer does not follow the correct protocol, the redundancy could be considered unfair. This could give rise to an unfair dismissal claim.

Settlement Agreements

The redundancy process can be both an administrative and time-consuming burden for an employer. Given this, many employers may opt to offer a Settlement Agreement to staff as a way to streamline this process. A Settlement Agreement is a document by which an employee agrees to waive their rights to bring any kind of legal action against their employer in exchange for a settlement payment.

In most cases, the payment offered in a Settlement Agreement will be higher than that of the redundancy payment, acting as a win-win for the employer and employee.

It is important, however, that the Settlement Agreement is properly drafted. A Settlement Agreement is a legally binding contract following which a claim for unfair dismissal cannot be made. When presented with a Settlement Agreement it will be necessary to obtain independent legal advice on the contents and to engage in negotiation of any unsatisfactory terms.  Without this, certain aspects of the agreement would not be considered valid. More often than not the employer will pay for their employee to obtain this advice.

Here at Gepp Solicitors we can explain what a Settlement Agreement means for you, and whether the deal should be restructured (or re-negotiated) to better protect your interests. We can also answer any other questions you might have, ensuring you know the options available to you.

For expert advice on redundancies and Settlement Agreements, please contact us on 01245 701583 or make an enquiry through our website.