New rules on compromise agreements are a mistake

In claiming to solve a problem, the government has created a whole new minefield for employers and staff, writes our columnist Gill Taylor

Gill Taylor
Gill Taylor

Suppose an employer wants to suggest to an employee that there is a serious issue with their work or behaviour.

It might be prudent for both sides to consider ending the employment by agreement rather than go through a long and difficult capability or disciplinary procedure.

For that, we use what are known as 'compromise agreements'. These have a useful place in the HR toolkit. If agreed, they allow the employee to go with dignity, a lump sum, confidentiality and an agreed reference. In return, they give up the right to claim unfair dismissal - that is, they waive the right to go to an employment tribunal.

Broaching the subject

But there is one tricky bit: how to broach the subject? You are supposed to be in dispute with an employee before you can have what's called a 'without prejudice' discussion, which is when you can open negotiations leading to a compromise agreement. The employee could get a shock if this comes out of the blue and could in theory claim constructive dismissal.

I've never found this to be much of a risk in real life. The employee is generally aware that there is a bad fit with the employer and is ready to talk terms. For the employer, the payout removes uncertainty about a possible claim to an employment tribunal and saves hundreds of management hours.

However, the government has decided that the risk of 'without prejudice' conversations is a pressing problem for employers. It thinks that employers would like to talk to an employee safely about a settlement without a 'dispute' being in place. In my view, this is spectacularly wrong.

On 29 July, compromise agreements became known as 'settlement agreements'. As a new option, employers can start a conversation with an employee without there being a pre-existing dispute. Evidence of any 'pre-termination negotiations' cannot be used in unfair dismissal cases.

Stings in the tail

But there are two exceptions, with stings in the tail. One is if an employment tribunal considers there has been "improper behaviour". The arbitration service Acas has published a list of examples of such behaviour, which includes bullying, undue pressure and discrimination. If an employee alleges one of these reasons, then evidence of any 'off the record' talks becomes admissible. They only have to allege this, not prove it, before the tribunal case is accepted.

The second sting is that breach of contract, automatic unfair dismissal (such as whistleblowing) and discrimination claims are excluded from these new pre-termination negotiation rules. Very few employees claim for 'ordinary' unfair dismissal alone. The government thinks it has solved a big problem - but in my view, the problem doesn't exist, and the government has created something with fresh minefields attached. These 'handling disputes' regulations will create more problems and issues for employers than they solve. It would be safer to stick to the current 'without prejudice' system and ask employees to give up all their rights to go to a tribunal for whatever reason (which is still allowed) when considering settlement agreements in future.

Gill Taylor is a sector HR consultant

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