Out-Law News 2 min. read
13 Jun 2012, 4:52 pm
Cable gave a "categorical assurance" of the Government's position on so-called 'compensated no-fault dismissal' in the House of Commons as the Enterprise and Regulatory Reform Bill was given its second reading. An amendment to the Bill, to be introduced at Committee stage, will instead make it easier for employers to come to an arrangement on dismissal without affecting the employee's right to refuse. The offer and related discussions will be protected from use as evidence in a subsequent unfair dismissal claim.
"Our reforms are not about removing individual employment rights," he said. "We want to do more to encourage parties to reach an agreed solution at an earlier stage. We will therefore introduce an additional clause in Committee to ensure that the offer of a settlement cannot be used against an employer in an unfair dismissal case. That will facilitate the use of settlement agreements, making it easier and quicker for employers and employees to come to an agreed settlement where an employment relationship is not working."
Settlement agreements, currently known as 'compromise' agreements, are already available to employers. They allow employers and employees to reach an agreement before a formal dispute arises, however the fact that an offer was made can be referred to in a tribunal if discussions are not held "without prejudice" or contain an "unambiguous impropriety".
"I'm not sure whether this announcement leaves me underwhelmed or intrigued," said employment law expert Christopher Mordue of Pinsent Masons, the law firm behind Out-Law.com. "On the face of it, the proposal is simply to 'reinvent' the compromise agreement and the without prejudice conversation, tools that are already used by employers on a daily basis to secure the agreed exit of employees. To be meaningful to employers, this proposal has to be more than just repackaging these as 'settlement agreements' and 'protected conversations'."
Allowing settlement conversations to be protected even if there was no current dispute - so covering the situation where an employer offers a payment to an employee to leave the company 'out of the blue' - was the most obvious change, Mordue said, as the current 'without prejudice' rule does not cover conversations where a dispute has not yet begun. "That said, the Government has previously qualified that idea by saying that the conversation could be relied on by the employee as evidence of discrimination or harassment - so it's not clear how an employer would be 'protected' when talking to an employee about retirement," he added.
The potential for relaxation of the legal formalities surrounding the current compromise agreement process would be a "much more significant change", Mordue said. Employees must be given independent advice to ensure that they are aware the agreement they are signing prevents them from bringing a tribunal claim – advice that is typically paid for by the employer, he said.
"There are hints (but nothing specific) in the announcement that these rules may be relaxed by requiring the employer to spell out the effect of signing the agreement when the offer is made in writing to the employee," he said. "That would be a major change to the existing law and could make the process of settlement quicker and less expensive for employers."
The Government also defended a power contained in the draft Bill which would allow the Government to radically reduce compensation awards for unfair dismissal. If enacted, it would be able to limit compensation to a figure between the national median annual earnings, or one year's earnings if lower, and three times the national median.
"The practical effect of the proposal would be that those on average or above-average earnings – middle income earners in particular – would not be properly compensated if they were treated unfairly by their employers," Shadow Business Secretary Chuka Umunna said during the debate.
However Business Minister Norman Lamb said that "realism about potential awards" was important for encouraging settlement of employment disputes. The proposed limit was, he said "greatly in excess" of the average award for an unfair dismissal claim.
