Voluntary Severance Schemes and Furlough

How Will the CJRS Change?

• The scheme will close to new entrants on 30 June 2020 and employers will not be eligible to claim in respect of any employees who have not been furloughed for at least 3 weeks by that date.
• A new flexible scheme will run from 1 July to 31 October 2020 where staff will be permitted to work part-time whilst furloughed.
• From 1 August employers will be required to contribute towards the costs of furloughing staff.
• All versions of the schemes will come to an end on 31 October 2020.

What Does This Mean for Employers?

If a business has been relying on the CJRS to support its staff costs, it will need to assess whether once the current level of support starts to reduce, will it have work available for staff and will it be able to meet its wage costs?

The lockdown has had an unprecedented impact on many businesses, particularly those in the retail, entertainment and hospitality sectors, and whilst restrictions are beginning to be eased, the landscape ahead is uncertain. Employers will be facing some challenging decisions. Scaling back their operations now may be unavoidable to secure the long term future of the business. This raises the spectre of potential site closures, redundancies and other work force planning measures that may be necessary to reduce operating costs.

One option potentially available to employers to save costs is to consider reducing the workforce by using a 'Voluntary Severance Scheme'. This can mitigate the need for compulsory redundancies whilst still creating a saving in wage costs.

What is a 'Voluntary Severance Scheme'?

This scheme allows employers and employees to mutually agree the terms for an employee's departure from the organisation. The exit terms agreed must be recorded in a settlement agreement. This is to ensure that any contractual and statutory claims the employee may have against the employer are properly settled. The incentive for an employee to enter into the agreement is a financial consideration that is generally more favourable than the entitlements they would receive in a compulsory redundancy situation.

A settlement agreement can provide a clean amicable break between the parties as well as security for the employer in terms of obtaining the employee's waiver of claims arising from their employment or its termination. It is beneficial for employees as they will generally receive better terms than the statutory redundancy payment, such as an enhanced termination payment, a payment in lieu of notice and an agreed reference. For employers, voluntary exits can be easier to negotiate and are much less time-consuming and technically challenging than a large scale redundancy consultation process. For these reasons, the Voluntary Severance Scheme can be an attractive route for employers to consider when thinking about the next steps.

Considerations for Employers 

Employers offering a Voluntary Severance Scheme as an alternative to redundancy will need to consider what enhanced terms will be offered to employees, and also whether to reserve the right to refuse requests if necessary. We recommend providing employees with a letter setting out the terms proposed and a draft settlement agreement to consider. In order for a settlement agreement to be legally binding, the employee must  receive the benefit of independent legal advice. It is customary for employers to cover their employees' reasonable legal costs or to make a contribution to them.

For specialist advice on Voluntary Severance Schemes and settlement agreements, please contact Joanne Oliver in our Employment Law team on 07909 547 537, or complete the form below.