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From summer 2013, compromise agreements will become known as settlement agreements.  The move comes as part of the government’s plan to make it easier for employers to terminate the employment of certain employees and is introduced by new employment laws under the Enterprise and Regulatory Reform Act 2013, accompanied by an ACAS Code of Practice.

Constructive unfair dismissal

The main difference under the new regime is that it will not be possible for either party to refer to ‘pre-termination negotiations’ during the course of unfair dismissal cases in the Employment Tribunal. Under the present rules, only ‘without prejudice’ discussions are excluded from evidence but a discussion is only without prejudice if there is already a dispute between the parties.  This means that employers are often hesitant about initiating discussions for fear that an employee might, for instance, resign and claim constructive dismissal, relying on the employer’s comments as evidence that they were “trying to get rid of me”.

The new rules, in theory, will allow an employer to approach an employee out of the blue to discuss the possibility of entering into settlement agreements terminating the employee’s contract of employment. There is no right to be accompanied at a pre-termination negotiation.  However, the Code recommends that employees be allowed to bring a work colleague or trade union representative. The Code also recommends that employees be given a minimum of ten days to consider settlement offers.

Protected conversations

Pre-termination negotiations are intended to allow parties more flexibity when ending the employment relationship and at least partially realise David Cameron’s vision of ‘protected conversations’ whereby “a boss and an employee feel able to sit down together and have a frank conversation at either’s request.” A similar system has existed in France since 2008, known as an accord de rupture conventionnelle. However, it remains to be seen whether the UK version causes more rupture than accord. While employers may welcome the opportunity to have a state sanctioned frank conversation, it is likely to be less popular with employees, who, in many cases, will be wary of being fast-tracked out of their jobs, as they see it.

Employment Tribunal and settlement agreements

Employers should also be cautious before approaching staff as there are a number of potential pitfalls, which may result in a judge later finding that the conversation does not fall within the statutory definition of ‘pre-termination negotiations’ with the consequence that the full and frank exchange can be referred to during an Employment Tribunal hearing. To give an example, the new law does not cover automatically unfair dismissals (where, for instance, the employee has been dismissed for raising a health and safety concern or for whistleblowing). Nor does it cover discrimination cases, so, if the employee argues that their dismissal is discriminatory on the grounds of a protected characteristic (such as age, sex or race) then any discussions leading up to the dismissal may well not be classed as pre-termination negotiations. Also, an employer will not be protected if it is found that there has been ‘improper behaviour’. It is for the Tribunal to decide what constitutes improper behaviour but, under the Code, this would include:

  • Any form of intimidation or harassment;
  • Where the employer is found to have put undue pressure on the employee by not allowing reasonable time for consideration of a settlement offer;
  • Where the employer threatens the employee with dismissal if the offer is rejected in circumstances where no form of disciplinary process has already begun.

The government appears to believe that the present law discourages employers from discussing an exit strategy with employees, because of the restrictions of the ‘without prejudice’ rule. However, it has been suggested by some that the new law purports to solve a problem that in fact never existed. In our experience, many employers have not been reluctant (through frank conversations or other means) to communicate to employees their concerns that all is not well. Furthermore, there must be a risk that Employment Tribunal litigation will be further complicated by distracting and time-consuming arguments over the admissability of evidence regarding certain conversations. Even assuming that pre-termination negotiations are a step in the right direction, employers should be careful to avoid the potential pitfalls along the way.

For more information on settlement agreements or to discuss how Lyons Davidson can help your business with these issues, contact our Employment Law team or by call 0117 904 6000.