As the end of Coronavirus Job Retention (Furlough) Scheme approaches fast (31st October 2020), we focus here on the option that employers have of using a settlement agreement in order to manage their workforce requirements when faced with the uncertain economic effect of Covid-19. We also look at settlement agreements here from the point of view of employees who have been offered them.

What happens when Furlough ends?

Furlough has provided a means to avoid employees being made redundant by partly funding their wages if it is unsafe for them to go into the workplace and if they could not work from home. Nonetheless many employers have still felt the need to make redundancies and as the Furlough scheme comes to a close this will be further to the forefront of the minds of employers that are concerned over the longer-term impact of Covid-19 on the economy. In some cases, this may involve a settlement agreement which offers employees the potential to receive a better redundancy package while also preventing them from bringing an employment tribunal against the employer.

It should also be stressed that employers can also make employees redundant at any point while the Furough scheme is in place. On the flip side, to encourage job retention, and before going down the redundancy or settlement agreement route, employers should consider that the government will pay businesses a £1,000 bonus for every furloughed employee employers keep on until the end of January.

What is a protected conversation?

The concept of a protected conversation is to allow employers to enter into discussions with an employee with a view to terminating their employment under a settlement agreement, without the parties being able to rely on the details of the conversation as evidence of an unfair dismissal claim. This is therefore when employees usually first become aware that they will be offered a settlement agreement and is often completely out of the blue. It is immediately following that protected conversation that many employees sensibly decide to take legal advice.

What are the key features of Settlement Agreement?

A Settlement Agreement is a legal contract entered into between an employer and an employee to end the employment relationship.

When entering into a Settlement Agreement, an employee would normally agree that:

1. their employment is terminated,
2. they accept a sum in compensation, and
3. they agree not to sue their employers.

Every settlement agreement must be supported by independent legal advice provided to the employee with the legal fees of such advice met fully or, at least, partly by the employer.

What are the benefits of a Settlement Agreement for an Employee?

Difficulties and conflicts at work are often extremely stressful for any employee. Instead of spending weeks or months involved in internal procedures, mediation and an Employment Tribunal claim, many employees prefer to move on and put any dispute behind them. The financial compensation paid under a settlement agreement can reflect what has taken place and should be over and above the employee’s contractual entitlements and statutory rights. The payment under the settlement agreement would therefore often in effect constitute an enhanced redundancy package. This ultimately then means an employee can get compensated without the stress and uncertainty of going through an Employment Tribunal process.

What are the benefits of a Settlement Agreement for an Employer?

A Settlement Agreement is often a mechanism to implement a commercial decision to end a dispute quickly and sensibly, without admitting any fault or liability and also keeping any dispute confidential.

Even after a lengthy internal process, an employer may still be taken to an Employment Tribunal in any event, with little to gain from even if the outcome of the proceedings is in favour of the employer. The employer will have unrecoverable legal costs and valuable management time gone forever, not to mention the potential bad publicity. Settlement Agreements circumnavigate such negative scenarios and give an employer certainty, and control over their costs, and they are effective in terms of risk management.

Let us take it from here

If you have been provided with a settlement agreement by your employer, we shall be pleased to assist you in providing the required advice and your employers will often agree to pay all your legal fees for obtaining that advice.

If you are an employee or employer and would like further information, you can speak to one of our civil dispute resolution solicitors on 020 8891 6141. Alternatively, contact Jamie Jones or Paige Symns to discuss your settlement agreement. 

In these unprecedented times, all businesses are facing major challenges to their ongoing viability. Every day we read of well-respected names that are entering administration or “closing their doors”, even though the Government has announced huge support packages to assist the business world. In this article, I am specifically looking at one of those support schemes, the Coronavirus Job Retention Scheme (The Furlough Scheme), and the benefits and implications for employers.

What are the key features of the Furlough Scheme?

The scheme potentially takes in all employees who were on the PAYE payroll on 28 February 2020. They can be employed under different types of contract – full time, part time, zero hours etc.

The government will cover 80% of furloughed employees’ wage costs, up to a maximum of £2500 per month (plus Employer National Insurance and minimum automatic employer pension contributions). Employers may choose to top up the wages if finances permit but they do not have to. Rules provide for how the £2500 is calculated. It is a grant, not a loan and does not need to be repaid. Payments made to furloughed employees are taxable.

Employees cannot do any sort of work for their employer whilst on furlough, even for free. What they can do is training or volunteer work.

Furlough leave is for a minimum of three weeks. After that, employees can be put on a fresh period of furlough leave. Alternatively, staff can be rotated around, taking it in turns to be on a three-week furlough leave.

How to select for Furlough?

Employees need to agree to be placed on furlough. This should be confirmed in writing to them. When choosing who to place on furlough, employers do not need to demonstrate that redundancy was the only alternative. The usual employment law rules otherwise apply, so employers cannot select those to go on furlough for a discriminatory reason. Employers could consider a version of a redundancy selection exercise – ask for volunteers and then have a pooling and selection process. A fair procedure needs to be used, or run the risk of claims. If more than 20 are to be put on furlough, the employer will need to carry out collective consultation, unless it can show a ‘special circumstances’ defence.

Will annual leave accrue during Furlough leave?

Yes, although the HMRC guidance does not currently expressly deal with annual leave, it does confirm that: “Employees that have been furloughed have the same rights as they did previously”. This will presumably include entitlement to accrue annual leave in accordance with their contract.

To the extent that an employee’s contractual annual leave entitlement exceeds the minimum statutory entitlement of 5.6 weeks, it may be possible to expressly agree that the employee will ‘waive’ their enhanced entitlement in exchange for their pay being ‘topped-up’ (beyond 80%) during the period of furlough leave. So, by way of how this might work: if an employee’s contract provides for 25 days’ holiday plus 8 days’ bank holidays, then agreement could be sought to waive 5 days of this entitlement and ‘convert’ that entitlement into cash which can be then used to ‘top-up’ their furlough leave pay.

What about employees already been made redundant who you may now think could have been dealt with under the Furlough Scheme?

Employers may be able to reinstate former employees who have been made redundant since 28 February 2020. Where an employer wants to allow an employee to return, but only for a fixed period, in order to benefit from Furlough leave then it might be possible to enter into a settlement agreement preventing any future claims when the employee leaves again. This will be particularly attractive for employers if an employee will accrue two years’ service during Furlough leave and where there is likely to be a redundancy situation after Furlough leave.

Alternatives

For some employers, Furlough leave is not suitable. For example:
They might still need the employees, but for fewer hours;
They might still need the employees 100%, but cannot afford to pay them 100%;

Negotiation of reduced pay and reduced hours remains possible. If necessary, redundancy is still possible (instead of or after Furlough leave). Again, however, process and consultation will be important even where timescales are tight, and especially where there are 20 or more individuals involved.

It is worth keeping in mind that when the current restrictions are lifted and Furlough leave comes to an end, many businesses will struggle to return to a normal state immediately.

Summary

Good employment practise was important before COVID and remains still at the essence of all that businesses do whilst utilising the scheme, with the scheme providing additional flexibility during a period when the economic knock-on effects may well have a considerable impact for some time.

If you would wish to dis cuss any aspects of the above, please contact James Macdonald on 020 8891 6141 or via j.macdonald@srb.co.uk

James Macdonald