Last week the Government published an amendment to the Enterprise and Regulatory Reform Bill which is currently making its way through Parliament. They are trying to solve the following common problem for employers:

The Problem

Many employers try to end the employment relationship by approaching underperforming or unwanted employees with the offer of a “without prejudice” severance package or compromise agreement. On many occasions this works well, but it can be a risky option if the employee is unreceptive to the proposal.

Agreeing an employee’s exit from the business can be tricky. If the employee rejects it, then they might have the option of treating the offer as a fundamental breach of their contract before resigning and claiming constructive unfair dismissal. Alternatively, if the offer is refused and the employer then starts a procedure to dismiss the employee on the grounds of misconduct or performance, the employee will be well placed to argue that any such process is pre-determined and therefore unfair.

In both these situations the employee would probably be able to refer the Employment Tribunal to the “without prejudice” conversation as evidence in their claim of (constructive) unfair dismissal. This is despite the fact it is often thought that simply using the phrase “without prejudice” means that whatever follows can’t be referred to in legal proceedings. This can be the case but only where there is an existing dispute. In the example above, there is no dispute in existence when the employer approaches the employee with an offer – and therefore the “without prejudice” protection is unlikely to apply. This can leave risk-averse employers in a difficult position when they want to have frank discussions with their employees.

The Solution?

The Government is looking at preventing an Employment Tribunal from taking into account any offer made, or discussions held, with a view to terminating an employee’s employment on agreed terms. Therefore in the above example the employer would be free to discuss a settlement agreement with an employee, without fear of the negative consequences mentioned above.

The changes are certainly appealing to employers but several commentators have voiced concerns. The protection being discussed would apply to unfair dismissal claims only and not claims of automatically unfair dismissal, breach of contract or discrimination.

So, for example, an employer looking to offer a settlement agreement to an older employee might find himself on the receiving end of an age discrimination claim. As part of that claim the employee would apparently be able to refer to the attempt to offer him a severance package.

A further question mark lies over the fact that the provisions won’t apply where there has been ”improper behaviour”. The actual meaning of this phrase is likely to be heavily debated by employment lawyers and clients on both sides of the table. And with such arguments come increased costs for employers.

Therefore it appears that while the current proposals will be viewed by employers as a step in the right direction they are not a complete solution to a potentially tricky situation. We’ll be continuing to monitor these developments and updating the blog. In the meantime, if you would like to chat to one of our employment law specialists please call us.