The notion of negotiating a quick exit for difficult employees has always been an attractive proposition for employers, particularly over the last year since the introduction of Settlement Agreements in July 2013, replacing Compromise Agreements.
The change in name also brought with it new provisions whereby settlement offers and discussions relating to the termination of an employee’s contract cannot normally be referred to in evidence in a future unfair dismissal claim. However, whilst these provisions were designed to protect employers, there can be some hidden dangers. This article will discuss the benefits and the potential pitfalls of entering into Settlement Agreement discussions with an employee. You may also find our FAQs on Settlement Agreements useful which can be found here.
The new provisions are of most use where employers are on the brink of dealing with a performance or disciplinary issue and where the employee is likely to be aware that there will be serious consequences and possibly dismissal. Employers are able to have a discussion with the employee at the outset and offer them an exit in the form of a Settlement Agreement. This saves the employee the stress and potential embarrassment of a disciplinary and potential dismissal. For the employer, the cost of ‘paying off’ the employee may be a small price to pay set off against the potential headache and cost (in time and money) of carrying out a full disciplinary/capability procedure.
If the employee refuses to accept the Settlement Agreement offered, then the employer can then proceed with its usual disciplinary/capability procedures. If this were to result in the termination of the employee’s contract or the employee’s resignation, then the settlement conversations would not be admissible in evidence in any subsequent unfair dismissal claim. Also, the employee is not able to claim that just having the settlement conversation amounts to constructive dismissal (which was something that could have been raised previously).
– Improper behaviour by the employer during settlement negotiations
From our experience, employers who jump straight into pre-termination negotiations without first taking legal advice may risk engaging in ‘improper behaviour.’ Where there has been improper behaviour the employer may lose the protection that the Settlement Agreement discussions offer, i.e. a tribunal can permit the employee to raise the settlement discussions as evidence during an unfair dismissal claim.
One example of improper behaviour could be where an employer puts undue pressure on the employee to accept a settlement offer by threatening dismissal if the offer is rejected. We have found that employers sometimes dive head first into settlement discussions with an employee without fully investigating the issues and therefore risk inflating the situation. This can have damaging consequences to the ongoing employer/employee relationship if the employee refuses to leave under the settlement agreement and the employer does not have a fair reason to dismiss after a disciplinary/capability route.
Another example is giving the employee inadequate time to consider the offer. ACAS recommend a period of 10 calendar days, but we often see employers wanting a quicker resolution than this. The 10 day period is not set in stone, but the position may depend on whether the employer can justify its reasons for a shorter timeframe.
We expect the definition of what constitutes ‘improper behaviour’ to be clarified in case law in future. As a result, we foresee disputes arising over this question – and you do not want to find yourself appearing in a test case, so it is always best to take advice!
The main exception to the new inadmissibility rule is that it only applies in ordinary unfair dismissal proceedings. This means that settlement discussions that relate to issues to do with a potential automatically unfair dismissal (e.g. whistleblowing) are potentially admissible. Likewise, discussions about other types of case such as discrimination or breach of contract do not afford employers protection either. This means that Settlement discussions could be raised in evidence unless they are covered by the ‘without prejudice’ rule (discussed below).
– Conflict with the ‘without prejudice’ rule
Prior to the introduction of Settlement Agreements, employers were able to enter into ‘without prejudice’ correspondence with their employees where there was an existing dispute between the parties. This rule has been retained and as a result there is a risk that these two methods of negotiation could conflict. ‘Without prejudice’ correspondence can only be admitted in Tribunal where there has been ‘unambiguous impropriety.’ This is a much stricter test than ‘improper behaviour.’ This has created uncertainty as to the best time and means to negotiate an exit with an employee: offer a settlement agreement at the outset under the new provisions, or wait until there is a dispute and rely on the ‘without prejudice’ rules?
If you are an employer and are considering offering a Settlement Agreement to an employee then we would strongly advise speaking to a member of our team first who can help you avoid the pitfalls stated above.
If you would like to talk through a situation you are dealing with, or if you need advice on any aspect of employment law, you can contact any member of the Pure Employment Law team (01243 836840 or [email protected]).