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Adam Partington

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Ask the expert: Compromise agreements

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An employer is managing out some poor-performing employees. However it is proving to be a time-consuming exercise, and would like to offer them a compromise agreement instead. Adam Partington and Esther Smith advise.

 

The question

 
We have a situation whereby three managers in the business are failing to deliver in a number of areas. We have started a performance management route with two of them; one of which is already at a written warning stage for a specific failure. We all know that managing someone out through performance management is a time-consuming exercise and would like to offer them a compromise agreement to leave.
 
Is this recommended and what are the potential pitfalls? How do we stand if the employee refuses and continues down the performance management route and is ultimately dismissed – I suspect an ET may not regard the previous compromise agreement offer positively?
 

Legal advice

 

Adam Partington, solicitor, Speechly Bircham

 
Employers often resort to off the record communications to try to reach agreement with an employee by way of a compromise agreement, without recourse to protracted internal procedures or to avoid ending up in court or tribunal. Employees may subsequently seek to rely on such communications, meaning that employers need to be careful as these may not attract the protection of the ‘without prejudice’ rule. The without prejudice rule will generally prevent statements made in a genuine attempt to settle an existing dispute, whether made in writing or orally, from being put before the court or tribunal as evidence of admissions that can be used against the party which made them.
 
You are correct that the risk of offering the employee a compromise agreement is that in the absence of the protection of the without prejudice rule, the employee could point to this to show pre-judgment of any decision you take to dismiss them on the grounds of their poor performance. In so doing the employee would be seeking to demonstrate the insincerity of subsequent procedures or to support a claim of constructive unfair dismissal.
 
In order for there to be without prejudice protection, there must be a dispute in existence and those off the record discussions must be a genuine attempt to resolve that particular dispute. It is not enough that the parties are in dispute about something. There needs to be a particular dispute which the discussion must be genuinely intended to resolve. Courts and tribunals are prepared to investigate whether a genuine dispute actually exists. 
 
The safest route would be to allow the performance management process to run its course so that you are in the best position to justify any dismissal, because in the absence of a dispute, off the record discussions and the compromise agreement will probably not be protected.
 
If, however, you decide you want to offer a compromise agreement, to try and minimise the risk to you, you could try to obtain the employee’s agreement to entering into without prejudice discussions and explain what without prejudice means, preferably before such discussions commence so the employee has time to think and, if they wish, take advice. Make sure the compromise agreement and any other relevant documents are labelled ‘without prejudice’.
 
Remember that because there is a risk of the existence of such discussions and the compromise agreement being used to allege pre-judgment of a decision to dismiss on grounds of poor performance, the later in the performance management process the discussions are suggested, the less damaging any exposure of the discussions will be. It would also be prudent to make clear that no final decision has been made in relation to the performance management procedure. Try to keep away from discussing the detail of the dispute and be clear that no concessions are made as to the underlying dispute, in the compromise agreement or accompanying discussions. Focus on settlement itself as this reduces the risk of any concessions or comments being made which may be of use to the employee in subsequent proceedings.
 
Finally, matters involving possible discrimination carry more risk and whether, when and how to embark on without prejudice discussions should be carefully considered and preferably informed by legal advice. 
 
Adam Partington can be contacted at Adam[email protected]. For further information, please visit www.speechlys.com.
 
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Esther Smith, partner, Thomas Eggar

 
Offering any employee a compromise agreement, whether the issue is poor performance or disciplinary, is risky as you are exposing yourself to a possible constructive dismissal argument. However, the up side of that is that the employee has to leave to bring the claim, so at least you have got rid of the problem, even if it costs you!
 
The fact that you have commenced the performance management route is really helpful though as it gives you the ability to propose a compromise agreement with some justification, as an alternative route to progressing the performance process. This is not completely without risk but if you are able to offer the compromise as an option, or to continue with the process, with no pressure on the employee as to which to opt for, this should be ok. 
 
There is the risk that a tribunal, should it end up that far, will regard the proposal of the compromise agreement as confirmation that the employer had predetermined the outcome of the performance process, so the more evidence you have of the short comings and your efforts to resolve them, the better.
 
 
Esther Smith is a partner in Thomas Eggar’s Employment Law Unit. For further information, please visitwww.thomaseggar.com.
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Thank you.