From 29 July 2013 employers can hold informal discussions with an employee they wish to dismiss without worrying that the content of those discussions will be used against them in an employment tribunal.
The introduction of ‘settlement agreements’ (formerly known as compromise agreements) allows employers to settle any potential claims, even where no dispute has actually arisen; and potentially makes it easier to have a discussion with an under-performing or troublesome employee with a view to a “clean-break” end to their employment.
Unlike compromise agreements which were almost exclusively used at the end of the employment relationship, employers can also use these legally binding agreements to settle disputes in the workplace without necessarily resulting in a termination of employment. In addition, they can also be used to resolve issues brought by those who are not employees, such as workers and job applicants who may have a claim against the employer, for example over a claim for holiday pay, or the withdrawal of an offer.
But these should not be seen as an easy means to avoid proper performance management, and if agreement is not reached and the employee or worker carries on working it may do more harm than good to employment relations in the business. It is also likely that a settlement agreement will involve a financial payment of some sort where none would be warranted if the situation had been handled by reasonable, fair and transparent management.
As appropriate, an employer can start discussions verbally or by putting terms in writing. ACAS provides a set of template letters for employers to use to either offer terms or confirm agreement but these are not compulsory. It is also not a legal requirement to allow the employee to be accompanied.
However in order for the agreement to be legally binding:
– It must be in writing
– It must relate to a particular complaint or claim e.g. non-payment of wages, unfair dismissal
– The employee must have taken independent advice from a lawyer, trade union official or advice centre worker with current PI or other insurance covering their advice
– The agreement must name the adviser and
– The agreement must state that these statutory requirements have been met.
ACAS also published a Code of Practice on Settlement Agreements which is a statutory code and provides certain safeguards which must be observed, otherwise the confidentiality of the discussions may not be guaranteed. One of these is a 10 day “cooling-off” period which an employee or worker should be given to consider the terms offered and take independent advice.
This change in the law does not mean the employer’s obligations all disappear. If the end result is that the employment comes to an end the employee will still be entitled to notice and any payments they are due under their contract or for example a redundancy payment if that is the reason for their dismissal.
The new section 111A of the Employment Rights Act 1996 prevents the discussions resulting in a settlement agreement from being revealed to a court or tribunal provided the following circumstances apply:
– They relate to the ending of an employment relationship; and
– Only relate to unfair dismissal claims including constructive dismissal (even where there was no existing dispute).
This means the rule about inadmissibility is actually very narrow and does not apply to claims for wrongful dismissal (i.e. without notice) or breach of contract claims (e.g. for non-payment). It also does not offer any protection in cases of automatically unfair dismissal, for example, where the employer has discriminated against the employee or has dismissed the employee for asserting a right in relation to health and safety, or working time, or where they are a whistleblower.
And the rule will also not apply if the employer is guilty of improper behaviour, which covers a whole host of things the unwitting employer might do such as saying that if the discussions do not result in agreement that the employee will be dismissed.
So is an employer safe to offer terms and dismiss?
In the small proportion of cases where an employer wishes to end someone’s employment and feels it appropriate to make a payment rather than go through the process of warnings and monitoring performance this may be a useful tool. But where the dispute involves anything to do with pay, notice, discrimination or statutory rights, and you can be sure that legal advisers will encourage multiple claims to get round this, it will be of minimal use to the employer who cannot be certain that the discussions and any offer of settlement will not be revealed at a later stage in a court or tribunal.
Employers who already manage effectively will find this no great benefit while those who bully and intimidate staff will be no better off. It is no panacea but may just be viewed as a fast track method to ‘let go’ of staff who are unlikely to complain. For staff it might mean they get a pay-off where it would otherwise be wholly unjustified.
Time will tell whether this proves to be an effective performance management tool or a vote-grabbing manoeuvre to win over the business community.
About the Author
About the Author:
Fiona Coombe is the owner of Foresight Law, a consultancy providing support and training on all aspects of compliance for businesses in the recruitment and employment sector. Formerly Director of Professional Services and Company Secretary at the Recruitment and Employment Confederation for 12 years she is well known within the sector and has extensive knowledge of recruitment industry law and practice.