The end of compromise agreements!

This blog (originally published in July 2014) is being reposted following our WordPress account being hacked, resulting in the loss of all our blogs prior to June 2017.

July 29th sees the demise of the compromise agreement, but don’t panic, they are simply being renamed ‘settlement agreements’.

Over recent months we’ve had a lot of questions on our helpline or at training events and presentations about this much-heralded change.

It was forecast to be implemented in ‘late summer’, so obviously the Department for Business Innovation & Skills knows something about how long this hot spell is going to last. To my surprise they announced about a week ago, that late summer was going to be 29th July.

A key question on some people’s minds has been whether it has been worth putting off a discussion which may lead to a termination of employment until the changes take place.

The answer to this question has been, that not a lot is changing, so that in many cases it has not been worth waiting. The change does, however, make a difference to the part of the process that most employers find difficult, namely, initiating the conversation.

Up until now, it has been necessary to have a ‘without prejudice’ conversation, and strictly speaking these are only possible where there is an existing dispute between the parties.

Exceptions to this requirement include straightforward dismissals of employees who have not accrued the qualifying service for an unfair dismissal claim (see how to handle these situations) or situations where an employer is making a settlement payment that is sufficiently generous to prevent a Tribunal claim.

If conversations are genuinely without prejudice, then they usually cannot be quoted in Court or at a Tribunal.

As of 29th July, providing there is no improper behaviour (such as a threat to dismiss if you don’t agree) an offer to end an employment relationship on agreed terms will not be quotable in an unfair dismissal claim.

This should mean that it will be possible to have a more straightforward conversation without the ‘war dance’ of ensuring that it is ‘without prejudice’. This, in turn should prevent aggrieved employees resigning and claiming constructive dismissal, which has been the main fear in the past.

‘Things are not working out, so I’d like to discuss a deal with you that would enable you to leave if you wanted to with a settlement payment’ should be become possible.

So, is it really becoming much simpler? I’m afraid the answer is probably no – there are still issues to look out for:-

1. All the other conditions that we associate with compromise agreements remain the same for settlement agreements. Principally, the final agreement has to be in writing, and the employee has to have legal advice from an approved person (usually a lawyer).

So agreements of this nature are not likely to become less costly to implement, which was one of the hopes when the Government first announced these proposals.

2. Discussions will still be quotable (unless they comply with the terms of being ‘without prejudice’) where dismissal has already taken place, or where there is discrimination, automatic dismissal or ‘whistleblowing’ involved.

3. The new Acas Code of Practice on Settlement Agreements suggests that employees should be given at least 10 days to consider an offer. To give less, may constitute ‘improper behaviour’.

4. The ACAS code recommends (although it does not require) that companions should be allowed to attend pre-termination negotiations.

We will have to see how all this works out in practice, and in order to avoid being an early case in front of a Tribunal, many employers will probably prefer to stick with trying to ensure that a conversation is properly ‘without prejudice’.

There is currently very little case law about ‘without prejudice’ discussions in straightforward terminations which are genuinely to do with poor performance, conduct, attendance, or issues such as relationship breakdowns.

This suggests that initiating conversations are not as difficult as is imagined. It is therefore likely that the main impact of this change will be in changing employer confidence, and so issues may be tackled more directly rather than being avoided.

Together with other 29th July changes such as the introduction of Tribunal fees (subject to the judicial reviews being sort by Unison and others), and the capping of unfair dismissal awards to the greater of a year’s salary or £78,600, we may see greater confidence to tackle issues, and less Tribunal claims.

We shall see!

Ken Allison | 27 September 2017 | Paradigm Partners | www.paradigmpartners.co.uk

Ken Allison is an engaging trainer and speaker who manages to make his topics, on handling employment law related people issues and other HR stuff, highly interactive, challenging, entertaining, and above all, relevant to the 21st Century executive. Ken uses his understanding of managing businesses to show managers what they ‘can do’ rather than what they ‘cannot do’.

Through his firm’s ‘ExecutiveHR’ service, Ken also provides telephone based support services to businesses throughout the UK.

This blog is not a substitute for taking legal advice!

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