Settlement Agreements and ‘no-fuss sackings’

The Guardian carried an interesting story on Sunday night headed ‘No-fuss sacking payouts included in employment law overhaul’. This article makes the remarkable claim that the new Enterprise and Regulatory Reform Bill will allow employers to ‘sack their workers by offering them immediate payouts if they agree to leave without any fuss’ .

What makes this claim remarkable is that on the face of it, this is EXACTLY what the law currently allows. If an employee agrees to leave without any fuss in return for a payout from the employer then the parties can reach a ‘compromise agreement’ setting out the terms of the settlement and making it clear that the employee waives all rights to a legal claim in relation to his or her employment.

As currently drafted, the only the change that the Bill makes to  the current system is to change the name of  ‘compromise agreements’ to ‘settlement agreements’ – which is the absolute epitome of a cosmetic change. It has no practial or legal impact whatsoever.

The Guardian carries a detailed quote from the Minister, Norman Lamb. The fact that he has given such a quote suggests to me that this story is either being fed directly to the Guardian or is based on a press release not yet published on the BIS website. Either way, this means that we have to take the story seriously – but look at what Norman Lamb actually says:

Employers have to feel confident in dealing with situations such as where an employee isn’t pulling their weight or where someone is unreliable or even guilty of misconduct. In these instances it is sometimes in the best interests of both employee and employer to end the relationship speedily by reaching a settlement

An employee leaving by agreement can do so with their dignity intact. The employer secures peace of mind knowing that they will not face expensive tribunal proceedings. We know that many large companies use settlement agreements in this type of situation but we want to ensure that all employers – large and small – can make use of them without incurring large legal fees.”

Well yes, all well and good – but isn’t that just what compromise agreements currently do? Is there actually any change being proposed here, or is this all smoke and mirrors? There is some sense in the last point that compromise – sorry – settlement agreements can be made easier to draft with the result that legal fees are lower. Anyone who has gone through an actual compromise agreement process will have been frustrated by the absurd verbiage  that current legal wisdom seems to insist on inserting into the draft. A measure which comes up with a standard form of words would be very welcome. I doubt that solicitors will lower their fees by much as a result – but how expensive are they anyway?

There is, however, no change to the general structure of compromise agreements in the current draft of the Bill.  Nor is there anything that remotely relates to the next claim made by the Guardian:

…the new proposals will include a stipulation that an offer of a settlement agreement cannot be used in any future employment tribunal against the company. Employees can, however, refuse the offer and insist that any dismissal is handled through more formal complaint handling procedures.

This sounds similar to the ‘protected conversation’ idea that has been widely mooted in recent months. Assuming that the Guardian is not simply making this up or has been misled, this must mean that the Government is planning to introduce a clause creating some form of protected conversation as the Bill progresses through Parliament.

I hope that any such clause will be introduced at an early enough stage that it can be properly examined and debated. The wording of the clause will be crucial and is by no means straightforward. A badly drafted clause could be very damaging and result in a huge amount of extra litigation and uncertainty.

And I have to wonder – if this is the Government’s intention from the outset, why is there currently no clause to this effect in the Bill? Could it be because it is proving harder than expected to come up with a watertight provision? The nightmare scenario is that a slapdash new clause is introduced at Report stage in the House of Lords and nobody pays it any attention until the EAT cases start rolling in saying how completely unworkable it is.

The final claim made by the Guardian is this

The bill, being overseen by Cable’s Department for Business, Innovation and Skills, will also include a section insisting that employment disputes are considered by a less formal arbitration procedure before they go to an employment tribunal, in another attempt to cut costs.

I’m going to stick my neck out here and say that the Bill will do no such thing.  I assume – I hope – that the Guardian is mixing up the idea of conciliation by Acas prior to an ET claim with a process of arbitration, which is an altogether different thing. The Government’s proposals on pre-claim conciliation are at least set out in the Bill- although a disturbing amount of detail is being left to later Regulations. They key factor to watch here is  whether Acas is resourced appropriately given its new role. I would also hope that the current drafting on extending the time limit for ET claims to take account of the new pre-claim conciliation period is completely re-written. The current version is simply a nightmare. There is absolutely no prospect, however, of the Government introducing compulsory arbitration in employment disputes. Surely not. They just couldn’t -could they?

At the time of writing the jury is out on whether this article represents an attempt by the Government to make the Bill sound more radical than it is in order to appease the Beecroft crowd, or whether we can expect the Bill to be amended so that it actually does what the Guardian says it will. The second reading debate is on Monday and I’ll update this post when the position becomes clearer.

This is going to be fun, isn’t it?

UPDATE 1 Monday, 8.00 am

The story has also been picked up by the Daily Mail who use much of the same material as the Guardian (thanks to @Ljanstis for spotting the article). I won’t parse the article for all the silly little mistakes that no-one else cares about (‘wrongful dismissal’ indeed!) but it is worth looking at the last two paragraphs:

The Government will also issue guidance and template settlement agreement letters which will significantly reduce legal costs and enable more businesses to use them.

Ministers will consult over the summer on the principles of guidance for using settlement agreements, including draft letters and model templates for employers/employees to use.

Hmm. Does this sound like the Government are planning actual amendments to the Bill or just issuing guidance on how to use settlement agreements? Hopefully in the debate today a Minister will actually tell us what is being proposed so that we don’t have to try to guess their plans through the fog of a newspaper article.

UPATE 2 Monday 12.00

We now have the press release from BIS (spotted by @HRBullets) which confirms what the Government is actually proposing. Cutting through the verbiage – and there is quite a lot of it – the plan is to introduce a clause making the fact that an employer has made an offer of a settlement agreement inadmissible in the Employment Tribunal. This is a narrower proposal than the previous ‘protected conversation’ because there will need to be an offer made. What form of words will be needed to take advantage of the exception is not made clear and I have a horrible suspicion that the Government intends to deal with this issue through ‘guidance’. Clear wording in the Bill would be much better.

On the face of it this is actually quite a modest little proposal which will not make much of a difference in practice. However, whenever you define something in legislation there will always be arguments about what circumstances do or do not fall within the definition. The dispute resolution procedures seemed harmless enough way back in 2002 – and look what happened to them.

I can’t escape the feeling that in order to be seen to be ‘doing something’ about  making it easier to sack people the Government is solving a problem that doesn’t actually exist in practice.  In doing so it may create problems that we have yet to foresee. The new Clause is expected in the Commons Committee stage so at least we should have plenty of time to examine it before it becomes law

About Darren Newman

Employment law consultant, trainer, writer and anorak
This entry was posted in Enterprise and Regulatory Reform Bill and tagged , , , , , . Bookmark the permalink.

7 Responses to Settlement Agreements and ‘no-fuss sackings’

  1. “Anyone who has gone through an actual compromise agreement process will have been frustrated by the absurd verbiage that current legal wisdom seems to insist on inserting into the draft”
    I think this is part of the problem. A compromise agreement under the current rules can easily be contained on a side of A4. Yet if you compare a typical one drafted by a solicitor, normally running to several pages, with a COT3 agreement made through ACAS you’ll see why simplifying things (if that is the Govt intention) is a good idea for employers

  2. Got to disagree with “the dispute resolution procedures seemed harmless enough way back in 2002.” I remember being against them from the start for the reasons that, eventually, everyone was. On the other hand I agree with everything else you say

  3. One thing I have noticed about compromise agreements recently is that once explained the clients can be quite surprised at how constructive they are INTENDED to be. The phraseology of most templates reads as very onerous and threatening and often relates to highly paid executives following a dispute…..people who are quite pleased to move at a lower level need something much more simple…..will there still be a requirement to seek independent advice for the agreements to be binding as per Section 203 ERA?

  4. Andrew Crisp says:

    A slightly less scholarly response . . .

    I advise roughly 300 employees per year on their compromise agreements – they find us through Google. It’s just a small point but changing the name to settlement agreement will play havoc with our search engine optimisation!!!

  5. Pingback: Is the Coalition Government waging a 'war on how we work'? - XpertHR's Employment Intelligence blog - XpertHR Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  6. Pingback: Beecroft report was inspired by ‘hopeless’ HR director, says Telegraph | XpertHR - Employment Intelligence

  7. Pingback: Beecroft report was inspired by 'hopeless' HR director, says Telegraph | Employment Intelligence

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