Putting your cards on the table

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The Government has announced plans to make it easier for employers to suggest to an employee that the time has come to part company (with an agreed severance package). We take a look at the new proposals.

Employers have long used compromise agreements to resolve employment disputes. However, it has always been difficult to know how and when it is safe to suggest a settlement to an employee, particularly where you want to pre-empt a full blown disciplinary procedure or performance review. If you make a mistake, you risk the employee arguing constructive dismissal, that a subsequent unfair dismissal process was flawed or biased or that you were motivated by discrimination.

The Government proposals would allow you to make a settlement offer in a letter to an employee, setting out what payment could be expected on termination of employment. It appears that the offer could be made at any time, out of the blue, regardless of whether a current dispute exists or whether the employee agrees to enter into settlement discussions. The employee would be free to decline the offer, in which case you would have to continue with the normal processes to resolve the issue. Crucially, neither you nor the employee would be able to refer to the settlement offer during subsequent employment tribunal proceedings.

If agreement is reached, it will be recorded in a ‘settlement agreement’, which seems to be a rebranding (and hopefully simplification) of the old ‘compromise agreement’. The Government intends to publish ‘draft letters’ and model templates for employers and employees to use. This is intended to remove the need for either side to take legal advice (though we are sceptical that the change will have this effect).

The Government believes that their proposals could prove useful in scenarios where an employee is not pulling their weight or is unreliable or even where they are guilty of misconduct as it allows a deal to be discussed and negotiated and for an employee to leave with dignity. Interestingly, the proposals do not expressly refer to resolving grievances although they recognise the fact that no matter what the rights and wrongs of a dispute are, sometimes it is best for all parties to end the employment relationship and to move on.

The proposals have not yet been fleshed out – and the devil will no doubt be in the detail. For example, will employees be able to refer to the offer if they are alleging the employer acted in a discriminatory way? The Government intends to consult during the summer and, when drafted, the relevant clauses will be inserted into the Enterprise and Regulatory Reform bill which currently before Parliament.

EEF is supportive of these ideas as it had previously called for a broader package of measures designed to simplfy the whole compromise agreement process. We will be continuing our dialogue with Government on the issue in the next few months, and recognise that the nitty gritty of the proposals will be key.

If you would like us to take into account your views on the issue, then please contact Tim Thomas, Head of Employment Policy

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