Employers will be able to offer settlement agreements before a formal dispute arises and will be legally protected from this offer being used as evidence in an unfair dismissal tribunal case, under new legislation proposed by Business Secretary Vince Cable.
In his opening speech at the second reading of the Enterprise and Regulatory Reform Bill, Cable is endorsing plans to for employers to be able to offer employees a pay-off to go without resorting to a tribunal. Employees will be able to choose to reject the offer of a settlement agreement and proceed to a tribunal where any offer made previously by the employer cannot be used against it.
“There are inevitably occasions when the employment relationship doesn’t work out. Employers have to feel confident in dealing with situations such as where an employee isn’t pulling their weight or where someone is unreliable or even guilty of misconduct," said Employment Relations Minister Norman Lamb.
“In these instances it is sometimes in the best interests of both employee and employer to end the relationship speedily by reaching a settlement. An employee leaving by agreement can do so with their dignity intact. The employer secures peace of mind knowing that they will not face expensive tribunal proceedings. We know that many large companies use settlement agreements in this type of situation but we want to ensure that all employers – large and small – can make use of them without incurring large legal fees.”
“The principle that employers should be able to manage the performance of their employees effectively, without fearing expensive and time consuming tribunals, is a good one. The reality that employment relationships sometimes don’t work out, and that compromise agreements can be used as a quick, face-saving way out for employees and employers is also recognised," said Mike Emmott, Employee Relations Adviser at the CIPD.
"However, an employer’s first point of call shouldn’t be to stick a compromise agreement on the table and show staff the door if an employee’s ‘face doesn’t fit’. This can only have a corrosive effect on employee engagement at an individual firm level, and job security and its hand-in-hand relationship with consumer confidence at a macroeconomic level. Perhaps most importantly, there is a law of basic common decency that says employers shouldn’t show employees that door for no good reason – undermining this risks undermining mutual trust and confidence in the workplace with catastrophic consequences for organisational performance and competitiveness."
The government has a duty of care to bear in mind, he cautioned. "Employers need to understand that settlement agreements tabled in the context of without prejudice conversations will do nothing to protect them from discrimination or constructive dismissal claims if they act improperly," he said.
“The government also needs to take extreme care to avoid the potential for a truly epic example of the law of unintended consequences. While the proposal is intended to cut red-tape and make life easier for employers, without very careful drafting there is a very real potential for the creation of complex disputes and legal arguments about whether any given conversation or settlement agreement falls within the new regulation. This could create far more disputes and red-tape than the proposal is intended to cut through.
“In the final analysis, though, the simple message for employers is that, with or without ‘settlement agreements’ there is no substitute for good management and proper performance management. Get that right, and there is no reason under the existing law why you can’t remove underperforming employees and replace them with the ones you need to drive your business forward."
Esther Smith, a Partner at law firm Thomas Eggar, added: ""I don’t see that Mr Cable’s latest initiative actually takes the world of employment law and regulation any further forward. While it may give businesses, both large and small, greater security in trying to broker a discussion with an underperforming employee about them leaving the business under a compromise agreement, the position on negotiating the terms of that agreement do not seem to be affected by his idea.
“The sum paid to a departing employee under a compromise agreement is, generally, based on an assessment of what that employee would be likely to recover were they to pursue a claim against their employer for unfair dismissal. Nothing in this proposal appears to change that and given that it is commonly the prospect of paying out compensation to underperforming employees, rather than the ability to broker a discussion with them that deters smaller employers from instigating such discussions, I can’t see how Mr Cable’s emphasis on settlement agreements is going to either de-regulate the employment field or encourage growth in business."
But employers organisation the CBI backed Cable’s initiative. “Today’s announcement will simplify the process of ending an employment relationship in a way which is acceptable to both sides," said Neil Carberry, CBI Director for Employment & Skills. “Simplified settlement agreements will give firms the confidence to have a frank conversation about ending employment on fair terms, without the fear of a drawn-out and costly tribunal claim. The CBI has long taken the view that simpler and more legally certain settlement agreements would be more effective for employees and businesses, especially smaller firms.”
