COMPROMISE AGREEMENTS

 

 Call us NOW on 01793 338888 if you want to settle a dispute.

It is a ‘shaking of hands and an amicable, prompt, parting’ of ways !

EMPLOYERS URGED TO SETTLE

Employers are urged to settle; to consider Settlement Agreements (Compromise Agreements) – 13th February 2013.

Workplace disputes are an ever present challenge for employers, and if they are not resolved effectively, could lead to a costly employment tribunal claim say Miller Samuel Solicitors.  We absolutely agree.  Government is increasingly encouraged to resole disputes through the use of a mutually agreeable settlement, in order to reduce the number of cases referred to an Employment Tribunal. 

This is good business sense. It reduces legal costs and risk to the business too.

SETTLEMENT AGREEMENTS

Settlement agreements (sometimes called Compromise Agreements, as they were once known as) are mutually agreed, legally binding documents which can be used to end an employment relationship.  Under the terms of a typical settlement agreement, the employee receives a severance payment, and very often an agreed reference, in return for waiving their right to take a case to an employment tribunal on any grounds covered by the agreement.

WHY USE SETTLEMENT AGREEMENTS?

The Government believes that the use of settlement agreements brings a number of advantages:

  • They enable a workplace dispute to be resolved without ending up in an employment tribunal.
  • Employers gain peace of mind in knowing that they will not end up in a tribunal over any of the grounds covered by the agreement.
  • The employee benefits by getting a severance payment and avoids having a dismissal in their employment history.

GOVERNMENT PROPOSALS

The Government consulted over the use of settlement agreements in September 2012, as part of its wider ‘Ending the Employment Relationship’ consultation. It has now published its response to the consultation, including a number of proposals with regard to settlement agreements:

  • It will make template letters available to encourage the use of the new settlement agreements, alongside a statutory code of practice which will include an explanation of improper behaviour.
  • In response to concerns raised during the consultation, the Government will no longer set a guideline tariff for settlement agreements. Respondents highlighted that this could set unrealistic expectations for employees, and could be viewed by employers as a maximum from which they would try to negotiate down.
  • Instead, the Government will publish guidance outlining the issues that should be considered when deciding and negotiating the level of financial settlement.

CAP ON UNFAIR DISMISSAL

As well as promoting the use of settlement agreements, the Government has also announced its intention to introduce a 12 month pay cap on the compensatory award for unfair dismissal. It does not, however, plan to amend the overall limit of the cap, which currently stands at £72,300.

 “Employment Tribunals are costly for everyone, in terms of money but also time and stress,” commented Employment Relations Minister Jo Swinson. “We need to tackle unrealistic expectations about the levels of compensation awards, especially when only one in 350 people who make a claim for unfair dismissal receive an award of more than their own salary, and the average award is less than £5,000.”  “Tribunals should be the last resort not the first port of call,” she concluded.

WHAT IS A COMPROMISE AGREEMENT

The Equality Act 2010 makes it clear that Compromise Agreements can be safely used to settle employment disputes, particularly in discrimination claims. Vince Cable, secretary of state for business, innovation and skills, said on 11 June 2012 that the ‘compensated no-fault dismissal proposal’ would not be taken forward.  Instead, the emphasis will be on settlement agreements, which can be used by all employers but which cannot be forced on the employee.

Under changes in Employment Legislation during April 2012, it is now lawful (and to a great extent cost effective) to use HR Consultants, such as ourselves, where Compromise Agreements (Settlement Agreements) need to be finalised.   We are both qualified and insured to provide this service to both employees and employers.  (See role of Adviser, below).  We also work closely with Employment Law Solicitors where an organisations insists that a final agreement is signed of by a Solicitor.

Under Clause 17 in the Enterprise and Regulatory Reform Bill Compromise Agreements will be renamed Settlement Agreements and the process will be made more straightforward for both employers and employees.

A compromise/settlement agreement is a legally defined agreement under which an employee whose working relationship with the employer has become irretrievable agrees, in return for a negotiated financial sum, not to bring a tribunal claim against the employer.

So, a Compromise Agreement is a ‘Without Prejudice’ and legally drawn up Agreement (a settlement agreement) that both employer and employee sign and enter into as part of an exit strategy.   By stating that it is a ‘Without Prejudice’ document you are stating that what follows cannot normally be used against you in court as you do not admit liability for the purposes of any subsequent legal proceedings (See below).  The entire approach tends to be used where an employer wants an employee to leave the workplace quickly and under mutually agreed terms and/or where the parties acknowledge that the working relationship has come to an end but neither party wants to go through a risky, costly, lengthy and/or  formal process.

It is a ‘shaking of hands and an amicable, prompt, parting’ of ways.  

WHAT IS WITHOUT PREJUDICE (Legal Definition)

Without Prejudice is a law phrase meaning ‘without abandonment of a claim, privilege or right’ and ‘without implying an admission of liability’.  It is often used when a document or letter is labelled ‘without prejudice’ meaning that what follows cannot be used as evidence in a court case, cannot be taken as the signatory’s last word on the subject matter and cannot be used as a precedent.  Contents of such documents normally cannot be disclosed to the courts but, when a party proposes to settle a dispute ‘out of Court’ it is the genuineness of the effort that determines whether the proposal can be disclosed or not and not whether the words without prejudice were used.  When a court case is dismissed, or a court order is issued ‘without prejudice’ it means that a new case may be brought or a new order issued on the same basis as the dismissed case or the original order.

A WITHOUT PREJUDICE COMPROMISE AGREEMENT

A Without Prejudice Compromise Agreement is often drawn up where there has been a dispute between the employee & employer and/or as part of a redundancy process.   Senior Directors within organisations tend to adopt this approach where there are simply clashes of opinion in the Board Room regarding the future of the organisation, or where a conflict of interest has arrisen and the parties agree to part company amicably.  

It is a lawful and common-sense approach to parting company  professionally and with no malice, within the business world.

Under the Equality Act 2010 it is clear that compromise agreements can be safely used to settle discrimination claims.

FIRST; The employee (or their representative) wishing to leave the organisation  may be invited into an “off the record” discussion at which an employer may raise the prospect of a compromise agreement or severance agreement.  To make this approach attractive to the employee, the employer is often willing to pay a sum over and above the minimum payment (ie: statutory notice pay), to ensure that an employee is motivated to leave employment quickly, quietly and under the mutually agreed terms. 

NO AGREEMENT; If the employee rejects a settlement agreement and has the necessary period of qualifying service, the employer will have to have a fair reason for dismissal and go through a fair dismissal procedure in order to reduce the risk of an unfair dismissal claim, and regardless of length of service will need to follow any contractual disciplinary and dismissal procedures to reduce the risk of a wrongful dismissal claim.

AGREEMENT; If an agreement can be reached, in return, the employee agrees that s/he will not bring a future legal claim against the employer (except a claim relating to personal injury or pension) and nor is s/he able to ‘bad mouth’ the employer or bring them to disrepute.  The terms of the settlement are confidential too.  For all these reasons, the tight constraints surrounding the process, is often described as a ‘gagging clause’.  That said, it is an extremely effective and popular means of resolving employment disputes, parting company and moving on professionally – with little or no risk to either the business or the credibility of the parties involved.

ADVISER; Importantly; There is a requirement for the employee to receive independent advice from a solicitor, trade union official or qualified advice worker before entering into a compromise agreement.   An advice worker may constitute an employe or volunteer working for an advice centre such as Citizens Advice, ACAS or a nationally recognised advice centre such as The National Bullying Helpline.  We founded The National Bullying Helpline and it is a UK wide, nationally recognised, advice centre specialising in conflict resolution.  The Employment Law Tribunal system, GP surgeries, ACAS, Citizens Advice and employers from both the public and private sector, UK wide – all refer cases to us.  The helpline was founded by us and is privately funded by us.  For the purpose of the Act, therefore, our team are qualified.  Our team is also highly qualified in employment law, experts in conflict resolution and fully insured (indemnified) to advise in this specialist area of work – enabling us to provide a comprehensive Compromise Agreement Service.  Despite this, we work closely with a specialist team of Employment Law Solicitors. 

The process itself is not always straightforward. More importantly a compromise agreement is not binding unless an employee receives expert advice from an independent expert in Employment Law. 

COMPROMISE AGREEMENT DOCUMENT; The document needs to be carefully drawn up by an expert and (amongst other things) should contain Employer and Employee details, definitions and ‘Acts’,  termination details, remuneration details, tax details, legal fees, return of property details, confidentiality restrictions, references and internal announcement details, settlement terms, representatation/adviser details, without prejudice headings and governing law and jurisdictions.

The document needs to be signed by all the parties.

Call us NOW to discuss your Compromise Agreement  

Tel: 01793 338888

PROTECTED CONVERSATIONS

Status 2012: Through 2011 our Government consulted on proposals to simplify resolution of workplace disputes and reduce the number of claims that go to tribunal, and announced its response on 23 November 2011.  The provisions can be found in the; Enterprise and Regulatory Reform Bill, which was introduced in Parliament on 23 May 2012.

Note: Protected Conversations are now referred to as “confidential negotiations before termination of employment”. The provision allows employers to discuss issues which could lead to dismissal, such as retirement or poor performance, in an open manner with staff, and offer a no-fault termination package through a settlement agreement, without these discussions and the settlement offer being used in any subsequent unfair dismissal tribunal claims. Unlike “without prejudice” discussions which also cannot be disclosed in tribunal or court proceedings, the confidential negotiations provision can be used even if there is no existing dispute.

As proposed, the provision for confidential negotiations would apply only to unfair dismissal claims. For claims other than unfair dismissal — such as breach of contract, discrimination, or dismissals that are automatically unfair such as whistle-blowing — negotiations will continue to be able to be taken into account unless they are explicitly without prejudice. As worded, the proposed legislation seems to provide that if an unfair dismissal claim is brought at the same time as another claim, the negotiations will be able to be taken into account in the unfair dismissal claim as well. Negotiations will also be able to be taken into account in relation to anything said or done which in the tribunal’s opinion was improper, or was connected with improper behaviour. “Improper behaviour” is not defined, but would presumably include an employer seeking to coerce an employee into accepting a settlement agreement. Some say that, ‘in order to decide whether something improper was said or done’ the tribunal would have to hear about the negotiations anyway!

HOW WE  CAN HELP YOU

At HR & Diversity Management we broker such an approach on behalf of our clients.

Once we have ascertained that both parties are receptive to the approach, we draft the Compromise Agreement for consideration.

We advise both parties on the process and we advise both parties of their legal obligtions  and the Without Prejudice rule.  This includes advising all on the  terms and representing one of the parties in negotiations about the terms, including the financial compensation.  It is most important that the agreement is not only mutually agreeable but that it is  legally binding and will protect both parties.

In summary, we point out both the risks and the beneftis of such an approach.

When matters are finalised, we will draw up the final Compromise Agreement and present it to both parties for signing. 

Prior to finalising matters, we are legally obliged to once more draw our client’s attention to any/all  legal constraints and legal obligations – as set out in the documentation.

We have full indemnity insurance enabling us to carry out this specialist work.

We would be very happy to assist you in this process and have almost 20 years of experience of dealing with compromise agreements.

Call us NOW on 01793 338888

or email admin@hrdiversity.co.uk