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Following the success of our March webinars when we teamed up with Gowling WLG, we recently held another with Partner Jonathan Chamberlain to guide employers making difficult decisions during this period.

With 19 July on the horizon, the disproportionate financial impact on certain sectors may ease, but the practicalities of this period will continue to shape organisation’s responses in the recovery. Here we outline the key insights shared by Jonathan around what has changed during the pandemic when it comes to this process.

The full webinar is now available on demand, to view at your convenience:

  • The pandemic has brought about new ways of working and is also forcing organisations to take hard decisions about their shape, size and purpose.
  • How is COVID-19 affecting the way businesses take and implement those decisions?
  • When it comes to difficult conversations with managers and employees, what is different in the new environment?
  • What can employers do now?

Letting individuals go

Mitigation is absolutely critical when considering how best to let someone go. Even though 54 per cent of respondent employers to our recent UK Reward Management Survey have avoided making redundancies, others have been forced to due to budgetary constraints and restructurings in response to the operational restrictions facing certain sectors over the pandemic.

Mitigation drives how much money employers will need to pay someone as compensation, in addition to someone’s notice period. If someone’s employment is terminated and a payment in lieu is made instead of making them work their notice, this can be regulated by the contract itself. Compensation for unfair dismissal or discrimination is separate – any form of severance payment apart from defined sums of money all ultimately relate to loss. In the US punitive or exemplary damages operate, whereas aggravated damages in this country are extremely rare.

Defining loss

The extent of an individual’s loss will be driven by how long it will take them to find another job. In practice, this will be driven by how buoyant the labour market is. It will also depend on how junior the person is – generally, the more senior an individual is, the lengthier the time and therefore the larger the expected payment. For those who have lost their job during this period, security is a key concern. For those working in life sciences and healthcare, these are really buoyant markets at the moment, whilst professional services have been largely unaffected.  However, for those in hospitality and leisure to bricks and mortar retail, this has been a brutal experience to stay afloat.

The primary effect of letting someone go in tough times, is that they are going to be looking for more money to support them searching for another role and the law will support them in that. These times are affecting these sorts of conversations when it comes to litigation too. Traditionally, it is accepted that litigation is something that employers and employees should both strive to avoid, but tough times have affected this.

Increasing uncertainty around litigation

Pre-pandemic, the prospect of litigation meant that an employee would likely want to settle. However, the pandemic has changed this over time. Things are taking much longer to process and yet individual claims are up year on year by 13 per cent. The effect of the pandemic means that tribunals were hearing 40 per cent fewer final hearings. The system is becoming overloaded and whilst tribunal staff are working frantically to clear the system, the busiest in the country had to be shut because it was not a Covid-secure workplace.

Even now, cases filed in January are not being sent out to employers that were filed months ago. For the individual, the delay is terrible with the associated stress it brings. It is also problematic for organisations – from an evidentiary point of view, it is hard to retrace steps and elicit accurate witness statements when such a window of time has passed and recollections vary. Ultimately, the threat of litigation further down the line is not good for business planning and certainty.

Implementing (and budgeting for) difficult decisions in tough times

Basic principles of compensation are tricky. In the UK there is a dual system of employment protection rights. The contract of employment and the statutory compensation regime operate side by side. How the two interact is subtle. A clause specifying a payment in lieu of an individual’s notice period makes it more straightforward for all parties. With a three month or shorter notice period, having an argument about mitigation can be unproductive. Unless the market is particularly buoyant, it is worth negotiating when six months or more notice periods operate.

When individuals Google the sums they may be entitled to, they often receive inflated, top-end predictions. However, the calculation will be based on what is just and equitable. Statutory compensation sits alongside the individual contract. If compensating someone for infringing statutory employment rights, certain sums are earmarked for certain things. Injury to feelings can attract awards of between £5,000 - £30,000. Once again, mitigation is central to this, often hinging on how quickly the individual can find another job. The tribunal examines what has been lost between the date the individual lost their job and the hearing.

Factors affecting compensation

When negotiating the compensation, how long the individual is going to be out of work overall influences the awards tribunals are making. For example, when examining the average award for unfair dismissal, the average award is around £11,000. The maximum they could receive is up to one year’s salary or £80,000 – whichever is the lower figure. The real-time awards are nowhere near the maximum figures. Similarly, for racial discrimination, these claims are uncapped, but the average award is just under £10,000. Where the loss is of a sufficient long-term financial threat, for example involving age discrimination where the individual may be towards the end of their career, awards are generally highest.

Compensation is affected by length of service. Someone is not entitled to claim unfair dismissal if they have less than two years of service. However, discrimination rights are from day one. This is because they look at the seriousness of the act against an individual, not the length of their time there. In practice, length of service is factored into Employment Tribunal decisions but generally, individuals should receive a week’s pay for every year of service.

Managing employee turnover

“Being a little bit generous when coming to a financial settlement with individuals helps everyone in the circumstances.”

When organisations are faced with everyday restructuring or performance management issues, they will be alert to going down the performance management route or encouraging the individual to leave of their own volition. There is a delicate balance for companies to avoid constructive unfair dismissal claims. Mental health issues also play their part, contributing to injury to feelings. Compensation does take into account psychiatric injury.

A practical point to remember when dealing with everyone emerging from the pandemic is that everyone is vulnerable. This goes beyond the individual – HR and managers are also affected. Everyone on edge after the pandemic has taken its toll. As Jonathan points out, “Being a little bit generous when coming to a financial settlement with individuals helps everyone in the circumstances.” Get it wrong and the impact on those that stay is lasting. It is important to consider the effect of these decisions on employee morale and whether the treatment of individuals is consistent with an organisation’s employee value proposition and the culture they are hoping to build.

How to protect against future claims

Protected conversations were introduced a few years ago. Organisations previously felt that they could not have without prejudice conversations unless they recognised the dispute at the centre. Going down the routes of a disciplinary or performance improvement process were the only options before the idea of protected conversations were introduced. Follow the ACAS code which captures everything employers need to follow the right process.

However, it is important to remember that they do not sidestep discrimination claims. Without prejudice conversations can be useful if employers are sure they are on a good footing and no discrimination issues will be brought. Many individuals shoehorn discrimination into claims and employees may also consider post-employment discrimination claims if employers refuse to give references or provide unfavourable references. These will not be covered by the settlement agreement.

Focus on the individual

In terms of defining the big difference the pandemic has made, it is important to remember that the effect of the pandemic has been sustained. It is easy to forget this as we start to come back into the office and as restrictions ease. In terms of proactively managing the workforce, it might cost the company a bit more money to manage this process smoothly, but employee turnover in tough times has to be robustly managed to minimise the impact on remaining employees.

Get in touch

Watch this recording on demand to hear what Jonathan discussed in full. Contact Partner Jonathan Chamberlain at Gowling WLG for further information on how to reach a swift settlement and for an indication of the budgets involved. The longer it takes, the more time and money it costs internally so employers are urged to examine the lasting impact on their workforce. Get in touch with us to also discuss how a solid reward strategy can help employers to weather economic turbulence and guide decision making.

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