Many employers are not familiar with the term ‘Settlement Agreement’ (also known as a Compromise Agreement’) and most have not had any particular need to become au fait with them, until now, where they have found themselves in a position of having to make roles redundant to survive the current economic struggles caused by Covid-19.

What is a Settlement Agreement?

Put simply, a Settlement Agreement is a legally binding agreement either during or following the termination of your employment, which brings your employment to an end. It is recognised by statute and is the only way you can validly “contract out” of your employment law rights. It usually provides for a severance payment, in return for which you agree not to pursue any claim or grievance you may have in an employment tribunal.

Breach of Contract during Covid

Back in March 2020 when the first UK lockdown was announced, there was very little information freely available as to the legal impact of the pandemic on employers. It took some time before specific questions were answered in relation to holiday pay, the rules of furlough, and how the scheme affected existing contractual agreements with employees. As a result, many employers will have breached their contracts with employees if they did not have a legal representative on hand to provide advice. While these breaches were of course accidental, rather than wilful, it does not negate the employee from making a claim against them.

TEN Legal predicts a surge in claims against employers in 2020/2021 where employees were placed on the furlough scheme and paid 80% of their salary without their agreement. It is a common misconception that the furlough scheme simply overrides the employment contract that you have with your staff; however this is untrue, and to deviate from the employment contract by paying your employee 80% (as opposed to 100%) would be a breach of contract unless it was formally agreed and accepted by your employee that they would be paid 80%.

There may be other examples of the contract being breached as a result of adaptations made to accommodate the pandemic – such as the accrual and use of holiday, or where the job description has changed significantly from what was originally agreed without mutual consent. We have been made aware of cases where companies have made some roles redundant and distributed those activities to the workload of other employees – in some cases, these tasks are widely outside of the scope of their actual job role.

The role of Settlement Agreements where breaches may have occurred

A Settlement Agreement is not the same as redundancy, but is usually undertaken as part of a redundancy process and it protects the employer from claims for Breach of Contract being made against them at a later date.

A Settlement / Compromise Agreement may also be used where an employer wishes to terminate a position without the correct notice period, to protect against future claims against them.

The role of Settlement Agreements where a breach has not occurred

A growing number of companies are opting to couple their redundancy or terminations process with Settlement Agreements even where no obvious breach has occurred in order to protect themselves on the off-chance something was missed which could result in a claim against them.

This might be especially prudent for a small employer who has been handling their contracts and legal processes themselves without expert advice, and where it is likely that contractual breaches have occurred that they are not yet aware of, due to legal inexperience.

If you are making multiple redundancies as an employer, it is certainly a sensible approach that will work out cheaper in the long-run than paying for specific legal advice and representation on a case-by-case basis after the redundancies have been made.

How can TEN Legal help you with a Settlement Agreement?

TEN Legal have a very experienced in-house Employment Law department and we can assist you with preparing Settlement Agreements. Our fees are fair and competitive, and we are happy to offer a No Obligation telephone consultation.

Although TEN Legal are a Lancashire based law firm, we can provide our services remotely across the UK.

You can read more about Settlement Agreements on our website