In his opening speech this week at the second reading of the Enterprise and Regulatory Reform Bill, Business Secretary, Vince Cable, explained:
“Settlement agreements are smart, fair and pro-business reforms which deliver results for employees and employers. It empowers employers by enabling them to keep their workforce flexible and encouraging alternative ways of solving workplace problems rather than resorting to a Tribunal. But crucially it does so in a way that keeps the necessary protections for employees in place.
“Our proposed measures and guidance will achieve this objective. Making this approach simple to use will encourage employers to take on staff in the knowledge this there is an effective mechanism for dealing with serious problems if they occur.
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“We have spent time ensuring we have got this measure right and I truly believe this a smart confidence boosting measure for business.”
Under the measures (originally referred to as Compromise Agreements) employers will be able to offer settlement agreements before a formal dispute arises and will be legally protected from this offer being used as evidence in an unfair dismissal Tribunal case. Employees will also continue to enjoy full protection of their employment rights, as they can choose to reject the offer of a settlement agreement and proceed to a Tribunal.
The offer could be in the form of a letter to the employee and include detail on what kind of payment could be expected while employees can still choose whether to accept the offer. Settlement agreements should not replace proper performance management but there are occasions when both parties recognise that it makes sense to end the employment relationship. If an employee does not accept then the employer will still need to follow a fair process before finally deciding to dismiss the employee.
Warned Mike Emmott, Employee Relations Adviser at the CIPD:
“It is important that, in promoting these new proposals, the Government exercises its duty of care to employers in not overselling or oversimplifying what it is doing here. Employers need to understand that settlement agreements tabled in the context of without prejudice conversations will do nothing to protect them from discrimination or constructive dismissal claims if they act improperly.”
He added:
“While the proposal is intended to cut red tape and make life easier for employers, without very careful drafting there is a very real potential for the creation of complex disputes and legal arguments about whether any given conversation or settlement agreement falls within the new regulation. This could create far more disputes and red tape than the proposal is intended to cut through.”
Neil Carberry, CBI Director for Employment and Skills, welcomed the move:
“Simplified settlement agreements will give firms the confidence to have a frank conversation about ending employment on fair terms, without the fear of a drawn-out and costly Tribunal claim.
“The CBI has long taken the view that simpler and more legally certain settlement agreements would be more effective for employees and businesses, especially smaller firms.”
A consultation will be published in the summer on the principles of guidance for using settlement agreements, including draft letters and model templates for employers and employees to use.
