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Legislation update: Compromise agreements

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Legislation updateRichard White has a warning to employers when it comes to negotiating compromise agreements, and advises on the effective date of termination of employment.


Employees have a time limit of three months from the effective date of termination of employment (EDT) within which to bring claims of unfair dismissal. A recent case considered how to ascertain the EDT in circumstances where negotiations regarding a compromise agreement had broken down.

Radecki v Kirklees Metropolitan Borough Council

Mr Radecki worked as a teacher at a school run by Kirklees Metropolitan Council (‘Kirklees’). The school had concerns about his skills and difficulties with other members of staff, as a result of which he was suspended on full pay on 21 October 2006. A disciplinary hearing was due to take place, but was postponed to enable compromise agreement negotiations to take place. A draft agreement was drawn up which was stated to be ‘without prejudice’ and ‘subject to contract’. The agreement stated that Mr Radecki’s employment would terminate ‘by mutual consent’ on 31 October 2006.

“In light of [this] case, care should be taken in this type of situation as problems can arise where negotiations break down.”

With his knowledge, Mr Radecki was removed from the payroll on 31 October 2006, at which point negotiations regarding the compromise agreement had not been completed. Negotiations continued for several months but a compromise could not be reached and eventually, on 22 February 2007, Mr Radecki confirmed to Kirklees that he was not happy with the terms of the proposed compromise agreement.

On 5 March 2007, Kirklees wrote to Mr Radecki stating that his employment had ended on the date that he was terminated on the payroll system (31 October 2006) and that this had been mutually agreed. Kirklees also stated that Mr Radecki’s trade union representative had confirmed that Mr Radecki was in agreement with the proposed terms and would sign the compromise agreement when he took it to a solicitor.

Kirklees believed that an agreement had been reached with Mr Radecki and that his employment had ended by mutual consent on 31 October 2006. Kirklees therefore sent Mr Radecki his P45 showing that his employment had ended on 31 October 2006.

Mr Radecki issued proceedings for unfair dismissal at the employment tribunal on 7 March 2007.

The decision

The employment tribunal decided that Mr Radecki was out of time to pursue a claim of unfair dismissal, on the basis that his EDT was the date on which he was removed from the payroll (31 October 2006). As Mr Radecki had not presented his claim until over four months had passed from the EDT, he was unable to continue with his claim.

“Practically speaking, putting time limits on negotiations is a sensible measure.”

Mr Radecki appealed to the employment appeal tribunal (EAT). The EAT decided that the date on which Mr Radecki’s employment came to an end was 5 March 2007, the date on which Kirklees had written to him stating in no uncertain terms that the employment relationship had come to an end. Removing Mr Radecki from the payroll while he was suspended and then seeking to negotiate a compromise agreement did not have the effect of terminating the employment relationship. His non-attendance at work, the failure to have a disciplinary meeting and non-receipt of pay were all explicable in the context of Mr Radecki being suspended and in the course of negotiating a settlement. As a result, his claim of unfair dismissal was presented well within the three-month time limit.

Comment

It is fairly common that disciplinary proceedings are postponed and an employee remains away from work whilst negotiations take place regarding a compromise agreement. Often this is not a formal suspension, but rather an informal agreement that nothing will happen for a period of time to enable negotiations to be concluded. Most of the time, this does not cause a problem as the agreement will normally be signed even where there has been a reasonable period of negotiation, and the agreement will clearly record the termination date. However, in light of the above case, care should be taken in this type of situation as problems can arise where negotiations break down.

Practically speaking, putting time limits on negotiations is a sensible measure. If negotiations are not concluded within the time limit, then the employer should decide what next steps to take, for example, reconvening a disciplinary meeting. ‘Without prejudice’ discussions should not automatically stop an employer from communicating about other matters on an open basis, such as the employee being paid, or the question of termination of employment.

For further advice on this topic, please contact Richard White, specialist employment solicitor at Withy King, 01225 352 921 or email: [email protected].

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