News / Redundancy Settlement Warnings for Employers

Last Updated on 11/11/2020

Redundancy Settlement Warnings for Employers

Redundancy Settlement Warnings for Employers as figures reach a record high

The Office for National Statistics (ONS) has confirmed that redundancies have risen to a record high of 314,000 in the last three months, since September 2020.

Many factors have contributed to the recent rise including reasons such as employers making redundancies before the anticipated end of the furlough scheme at the end of October. The North had also been drastically hit with Tier 3 lockdown restrictions, before the National Lockdown confirmed between 5 November to 2 December 2020.

We are in the largest recession on record due to the result of the Coronavirus pandemic and as a serious consequence of this, we have already seen and will continue to see a further downturn in employment and redundancies.

For a number of years now, both employees bringing claims, and employers defending claims in the Employment Tribunal, have attempted to manoeuvre the proceedings without the aid of independent legal advice. Abolishment in the recovery of legal costs being a real factor in the decision making to “go it alone”.

However, the Court decision in Duchy Farm Kennels Limited –v- Graham William Steels [2020] acts as a reminder that if aiming to keep legal costs and involvement to a minimum, you should at least ensure any Redundancy Settlement is reviewed or advised upon independently.

The matter concerned a settlement agreed via ACAS between employer and employee to forgo a higher value employment claim against the employer. The settlement payment of £15,500 was agreed by the employer to be paid weekly over 47 weeks.

Part of the Settlement Agreement drafted by ACAS on the relevant COT3 form for the parties included a confidentiality clause. There was also a clause that neither party would make disparaging comments about one another and an agreement that the employer would provide a reference in agreed terms to a future employer of the employee.

After maintaining payment over a few weeks the employer stopped the instalments. Only £2,960.00 had been paid by the time it stopped, and the employer claimed that the employee had breached the COT3 Settlement Agreement by disclosing facts of the settlement to a third party. The employer claimed that the breach allowed it to treat the Settlement Agreements as breached, so they no longer needed to comply with the weekly payment obligation.

At Trial before the County Court at Birmingham Civil Justice the employee had the right pursuant to S.19A of the Employment Tribunals Act 1996 to issue County Court proceedings for an order for the payment of the sums agreed before the ACAS officer. The employee sought an order that the amounts were payable by the employer, whilst the employer defended the claim, seeking a declaration under the same 1996 Act that due to the breach of confidentiality by the employee, it no longer had an obligation to make the weekly payments.

At first instance, the judge accepted that the employee had breached the confidentiality clause. However, it also held that the confidentiality clause was not drafted as a condition precedent, which gave the employer the right to treat the breach as repudiatory or so serious as to allow it to be discharged from its obligations under the Settlement Agreement. The matter was appealed and came before Mr Justice Cavanagh of the High Court Appeals. He upheld the Decision. It is accepted law that a term in any drafted contract or agreement falls to be one of the following:

1. A condition – which entitles the innocent party to treat the contract or agreement as brought to an end if a breach of the term occurs.
2. A warranty – which does not entitle the innocent party to treat the contract or agreement as brought to an end if a breach of the term occurs and instead entitles the party to bring a claim for damages for the breach
3. A intermediate or innominate term – which falls half way between the other two terms, not automatically entitling the innocent party to treat the contract or agreement as brought to an end or to damages, but will need assessment as to how serious the breach is and the consequences of the parties to determine if it will have a repudiatory effect.

Mr Justice Cavanagh held the confidentiality clause was not a condition. He held that the COT form did not describe it as a condition, and the words used to declare the obligation “strictly” before the word “confidential”, did not emphasise the importance. Neither did he hold, that the obligation of confidentiality was of importance to the settlement by the COT form as a whole. It was an ancillary matter and one that was not of utmost importance to the type of claim that the employee was alleging or the reputation and standing of the parties particularly the employer, as in the locality the parties were known to have been in dispute already.

The confidentiality clause was held to be an intermediate/innominate term.

However, was it so serious a breach to allow the employer to treat it as repudiatory and bring the contract/agreement to an end? The approach to the answer was to test whether a reasonable in the position of the employer had found the breach to be so serious to show the contract/agreement as having been abandoned or a refusal to perform it.

The Court held not, the employer has suffered no financial loss, no commercial embarrassment, the type of employment settlement was modest in value and the court even held that the likelihood complained of by the employer, that copycat claims may increase, was held to be remote. Had the employer suffered commercial financial impact, damages would have been appropriate and ordered, but in the current circumstance that was unlikely and very hard to evidence. The employer was ordered to finish paying the employee his settlement sum.

The outcome of this case should act as a reminder that ACAS is available to facilitate an agreement between employer and employee, but they do not generally advise about the terms or merits of an agreement. If you want to protect the rights and obligations that you seek in such a settlement, engage specialist employment legal advisors.

If you require advice or have encountered a problem arising from a settlement reached do not hesitate to contact Miss Modasia at Clear Commercial on 0161 873 2797.