Unsettling times
Maeve Vickery explains some of the major concerns with the Government's proposed new law covering employment settlement agreements.
New law intended to assist employers and employees hold settlement discussions and facilitate reaching agreement to end the employment relationship is due to come into force next April under the Enterprise and Regulatory Reform Bill, by means of a proposed new section 111A(3) of the Employment Rights Act 1996 (ERA).
The proposal is that there will be a statutory provision setting out that offers of settlement in relation to unfair dismissal claims will be inadmissible in the Employment Tribunal.
This new protection will be in addition to the existing “without prejudice” rule and, importantly, does not require a “dispute” to gain the protection. Many employers have fallen foul of the requirement for a dispute to invoke without prejudice protection, resulting in claims for constructive unfair dismissal when proposals in relation to ending the employment relationship have been entered into in the absence of a dispute.
The proposal is that no particular previous process is required, so, in principle, this conversation could catch an employee entirely unawares. Whilst this is unlikely in the local government context, given the raft of policies in place to deal with performance management, capability, grievance and whistleblowing, there are concerns both amongst employer and employee groups that this could result in poor management practice, particularly in relation to performance management where, in some cases, employers may take this as a quick and easy route to remove people from the organisation without proper process.
The intention is that the new regime will be supported by a Statutory Code of Practice from ACAS, which is currently speaking to stakeholders, including the Employment Lawyers Association (ELA), about what this Code needs to cover.
A major concern is that this new protection will only apply to unfair dismissal claims and will therefore only be useful in the most straightforward of scenarios. The protection will not apply to any claims for discrimination or whistleblowing and so should not be relied upon where these issues may be a factor. This limited application is aggravated by there being no requirement for any earlier process leading up to the settlement discussion and offer. There may be situations where there are inter-personal difficulties at work between staff, or managers and staff, which, unless these issues are considered carefully before the discussions are entered into, could expose employers to potential claims for discrimination, in cases where this is or could be alleged to be an underlying factor. The fact that the proposal only creates protection in unfair dismissal cases is a considerable limitation, as many employment disputes, particularly in the public sector are made up of a number of different claims.
The new section of the ERA sets out that settlement offers will not be protected where the behaviour of either party in the discussions is “improper” or “connected with improper behaviour”. The principle behind this seeks to address such potential problems as the new statutory mechanism being used to disguise discriminatory conduct or undue pressure being applied to force parties to accept the offer. The proposed new Code of Practice is intended to assist parties in carrying out the process properly and to address what might be considered as “improper”. However, there are real concerns that the vagueness of the concept of “impropriety” will lead to uncertainty on the part of employers about the utility of the procedure.
The intention is to have template offer letters and settlement agreements in the hope that this will assist employers in the process. The suggested offer letters set out an invitation to a disciplinary, performance management or absence meeting and later in the same letter, make the offer. This creates its own problems as, if the offer is not accepted, the employer will need to go through a lawful process to deal with the specific issue properly so as to be in a position to defend itself at Tribunal should a claim be brought. Unless there is a separate “open” letter containing the invitation to the meeting, it is not clear how this process will be initiated in a manner which is admissible, as must be necessary to evidence proper process.
The proposed settlement agreements are, in reality, basic compromise agreements. There are no plans to alter the status or legal requirements for entering into compromise agreements and this part of the proposal effectively amounts to a name change. There are concerns that the proposed template settlement agreement is too simple and misses some basic elements, such as a warranty that the employee has not found another role. In the sort of factually-complex scenarios which frequently arise in the local government context it is highly unlikely that the sort of basic template proposed will suffice or be of any practical use. Most employers, certainly local government employers, will be familiar with the use of compromise agreements and are unlikely to find the templates useful. Fortunately the proposal is not to make the templates compulsory, although settlement agreement templates will still need to contain the relevant elements to constitute a lawful compromise agreement and will have the same legal effect. On a practical note, the template settlement agreements are not limited to unfair dismissal claims – Annexe A of the proposed template contains a summary of the majority of potential claims with the intention that those that are not relevant be excised.
Another proposal is that there should be a formula or guideline tariffs for settlement agreements, both to avoid employees having unrealistic expectations as to a likely settlement figure and to give employers a better idea of the level of offer which should be made. The formula approach would create difficulties as it could be seen as a starting point and potentially lead to employers paying more than they do currently to achieve settlement.
The alternative proposal is that there should be a list of issues which both parties can take into account in assessing the level of settlement offer, such as “the perceived strength of any potential claim” and “the individual’s perception of how long it will take to get another job”. These are crucial areas where the parties may well disagree. In local government it is likely that in-house advice will be available as well as union representation for the employee, which may help determine a sensible level of settlement figure. In the private sector where this sort of support may not be so readily available, this could lead to prolonged negotiations and additional legal costs, contrary to the aim of the legislation.
The Government expects the Statutory Code to resolve the uncertainty surrounding the current proposals. However, it is unlikely that any code will cure the inherent lack of clarity surrounding the concept of “improper behaviour” and the even less well defined concept of what is “connected with improper behaviour”. It is likely to take the Courts several years to reach any sensible degree of clarity which, in turn, is likely to result in employers not being confident to use the new mechanism. The current proposals, which may be seen as a worthy attempt to ease the burden on employers, may result in an additional burden for those employers who become involved in the anticipated satellite litigation, unless the draft law undergoes considerable amendment to achieve the aims intended.
Maeve Vickery, jointly chaired a working party of the Employment Lawyers Association (ELA) which responded to the Government’s “Ending the Employment Relationship” consultation. She is Head of Commercial and Employment at Pardoes Solicitors and formerly was in-house Employment Lawyer at Devon County Council.
