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Employment law

COVID impact on settlement agreements

With the pandemic having caused strain on many businesses, we outline why the use of settlement agreements has increased and what areas employees should be cautious of before putting pen to paper.

22 June 2021

How has COVID impacted UK employment?

Due to the impact of COVID-19, many organisations were forced to reconsider their business objectives and whether a workforce restructure was necessary. This has led to an increase in the use of settlement agreements as a means to terminate employment.

Settlement agreements can be used in multiple situations such as redundancy, disciplinary issues and solving issues experienced at work. Redundancy rates in the UK during the pandemic have risen faster than during the economic downturn of 2008-2009. Our data also displays a significant rise in the use of settlement agreements in 2020, an 86% increase compared to 2019, due to the increase in redundancies.

What is a settlement agreement and why are they used in redundancies?

Settlement agreements are a legally binding, voluntary contract between you and your employer, usually used when ending your employment on agreed terms.

Those being made redundant during the pandemic may want to challenge their employer's decision. Redundancies can lead to employees claiming for unfair dismissal, discrimination or other claims if they found the process upon which they were selected for redundancy to be unreasonable or unlawful.

By signing a settlement agreement, you waive the right to bring a claim against your employer in the employment tribunal, in return for a sum of money. Since many businesses have been hit hard financially during the pandemic, it’s no surprise that the use of settlement agreements has grown to avoid a hefty payout of compensation, should an employee raise a successful claim following their redundancy.

If your employer offers you a settlement agreement, it’s important to consider whether you think you’ve been or are likely to be unfairly dismissed or faced any unfair treatment before you sign. If you believe this to be the case, our expert employment solicitors can assess the strength of your claim and advise whether your case would be likely to succeed at a tribunal. Rejection of the settlement agreement without a strong claim could result in a fair dismissal with the reduced enhanced compensation such as notice pay and statutory redundancy pay only.

How has COVID-19 altered the settlement agreement process?

Receiving a settlement agreement can be an extremely sensitive matter, with COVID restrictions having removed many face-to-face consultations to discuss the clauses involved. Due to this, many meetings terminating employment have had to take place virtually. Employers have had to carefully consider how employees working from home may react to this less personal method and put actions in place to ensure the process, including independent legal advice, is conducted effectively with the highest professional standards.

Before the first lockdown at the beginning of 2020, ACAS published new guidance on non-disclosure agreements (NDAs) (or confidentiality clauses as they are often referred to in settlement agreements) for employers. They made it clear that NDAs cannot be used to stop someone from reporting discrimination or sexual harassment at work, becoming a whistleblower or disclosing a future act of harassment or discrimination.

Non-disclosure agreements are commonly found in settlement agreements, with this new guidance having encouraged businesses to consider their terminology and usage throughout the pandemic. You should check the wording of any NDA with your lawyer and consider whether you require any amendments to the clause.

When should you seek independent legal advice?

It’s a legal requirement to receive independent legal advice before signing a settlement agreement. Under most circumstances, your employer usually contributes towards the cost of receiving guidance on the terms and effect of the agreement.

In 2020 alone, our expert employment solicitors offered independent settlement agreement legal advice on over five thousand individuals, helping employees across the UK reach a fair agreement and offering support in negotiations when needed.

If you’ve received a settlement agreement, speak to one of our specialist settlement agreement solicitors today by calling us on 0330 041 5869 or contact us and we’ll call you.

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