From compromise to settlement

By Karl Barnes

As from 29th July 2013, the Enterprise and Regulatory Reform Act 2013 provides employers with greater scope and protection when seeking to reach an agreed termination of employment with an employee where no actual dispute has arisen. It has also introduced provisions to rename compromise agreements as ‘settlement agreements’.

For employers this represents a long awaited opportunity to address difficult employment relationships without immediate fear of tribunal claims.

In practice, the new legislation prevents ‘pre-termination negotiations’ from being referred to in evidence in any subsequent ordinary unfair dismissal case. The intention is to give employers more confidence to initiate discussions with employees about a proposed voluntary termination on terms to be agreed. The discussions will not be admissible unless there has been ‘improper behaviour’ by either party.

The changes will not affect the existing ‘without prejudice’ discussions when a genuine dispute arises but will allow employers to be more proactive at an earlier stage, thereby potentially avoiding formal disputes and to bring to an end working relationships that are unsustainable. For example, where an employer has concerns over an employee’s performance.

Employers must still exercise caution when commencing this process and must carefully assess the timing and the manner of any such negotiations. The employee is not obliged to agree to any proposal but clearly having come that far, it is likely that the working relationship may deteriorate even further. Consideration must also be given as to what could constitute improper behaviour by either an employer or employee when discussing and using settlement agreements.

If terms are agreed then employers will also need to carefully draft the settlement agreement itself as each scenario is likely to be founded in differing circumstances.

For specialist advice on settlement agreements and all other aspects of employment Law, contact our specialist employment lawyers, Karl Barnes and Lara Murray, on either 01268 240000 or KBarnes@palmerslaw.co.uk / LMurray@palmerslaw.co.uk