The Business Secretary, Vince Cable, has announced at the second reading of the Enterprise and Regulatory Reform Bill that he proposes to introduce a new provision to assist the use of compromise agreements (soon to be called “settlement agreements”).
The Business Secretary Vince Cable has announced at the second reading of the Enterprise and Regulatory Reform Bill (the Bill) that he proposes to introduce a new provision to assist the use of compromise agreements (soon to be called "settlement agreements"). In essence, the proposal is for employers to be able to approach employees to offer a settlement agreement if they leave their employment.
Under the current law, such discussions would be disclosable in tribunal proceedings unless they took place in the context of a dispute between the employer and the employee which had already arisen. The discussions would be protected from being referred to in any legal proceedings as being on a "without prejudice" basis.
What is now proposed is for such discussions to have the "without prejudice" protection even where no dispute has yet arisen. In practice, this is good news for employers that realise that an employee is not working out and so wish to have an amicable parting of ways. This new provision would enable employers to do that without the fear that such discussions would be quoted back at them in the employment tribunal. In some cases, the fact that an employer has had such a discussion with the employee often leaves it open to the employee to claim constructive dismissal for breach of the implied term of trust and confidence.
As is common with many good ideas, the devil is in the detail. The government has not yet published the details of the scheme and how it would work in practice. However, Vince Cable's announcement suggests that this special protection would only apply to unfair dismissal claims. So an employee who signs such a settlement agreement could still bring a claim for unlawful discrimination: these claims are notoriously more complex and costly to defend than unfair dismissal claims.
For many employers, there is little value in entering into a settlement agreement unless they can be certain that it draws a line over all claims for past incidents. Otherwise, an employee may simply take the money under a settlement agreement and then sue for unlawful discrimination, using the settlement money to fund this further litigation.
In addition, unless the Bill carefully covers the point, an employee can easily get round the protected offer by also alleging some kind of unlawful discrimination, with the result that the whole conversation runs the risk of becoming "open" before the tribunal.
It is, perhaps, surprising that it is thought to be necessary for employers to have this added protection, when, since April 2012, new employees have to wait two years before they even qualify for the right to bring an unfair dismissal claim. One would have thought that most employers (even small ones) really should be able to work out within two years whether an employee is any good. So the value of the proposed change will mainly affect discussions with those employees who have two or more years of service, or who might be claiming unfair dismissal for one of those limited situations where there is no qualifying period (such as whistleblowing).
However, one positive aspect of the Business Secretary's announcement is to put in place measures to make the use of settlement agreements much cheaper for (particularly, small) employers. It is proposed to produce a simple settlement agreement template and guidelines, which would lessen the need for employers to get expensive legal advice. For many simple settlement agreements, this seems very sensible.
Under the current law, the employee needs to take independent legal advice before such a settlement agreement became binding on him or her. In practice, employers are expected to pay for this, or at least make a contribution to legal fees. So, if the employee's lawyer comes back with suggested amendments to the template settlement agreement, many employers might feel that they too need to get legal advice. In any event, more complex settlement deals would continue to require legal input.
One concern about the publication of a standard template is the position of an employer who offers up a settlement agreement which does not follow the government template. Can an employee argue that the employer was acting unreasonably? There is a little worry in the legal community over the technical quality of such a template settlement agreement, but maybe we should wait and see.
The government will publish a consultation in the summer of 2012 on guidance principles for the use of settlement agreements, as well as draft letters and model templates for both employers and employees.
Fraser Younson is Head of the Employment Group at Berwin Leighton Paisner LLP.
For further information on this area, see PLC Employment practice note "Compromising employment claims", www.practicallaw.com/2-200-3350.