Today is the Day

by Orrick, Herrington & Sutcliffe LLP

TODAY is a big day for employment law. Even though many of you will be thinking about your holidays, or may have even jetted off to sunny shores, take care to remember that certain changes are taking place which will affect your standard documents and how you handle any exiting employees.

Firstly compromise agreements are to be renamed as ‘settlement agreements’. This is largely a rebranding exercise but one that is welcome as we now have a title which more accurately describes what the agreement is designed to achieve. On a practical basis most of the legislation which sets out the conditions for such agreements to be binding is amended from today and therefore it will require the agreement to state on the face that the conditions regulating ‘settlement agreements’ under the relevant legislation are satisfied.

As always, it is not that simple! Most of the primary legislation has been amended to refer to settlement agreements but some of the Regulations are not being amended and the original discrimination legislation that is still referenced in many such agreements will also not be amended. It therefore makes sense for the reference to be as follows: ‘The conditions regulating compromise agreements and settlement agreements are satisfied’. The agreement itself however, should be entitled ‘Settlement Agreement’ and henceforth you should feel free to refer to it as such.

Secondly the changes around pre-termination discussions also comes into effect today. These changes are contained in the Enterprise and Regulatory Reform Act and talk about ‘confidentiality of negotiations before termination of employment’. The theory behind this new law is that employers should be able to discuss with their employees the option of the employee leaving with a settlement agreement without the risk that that discussion itself will be used against them in a future claim. 

All sounds quite sensible. However, there are three important exceptions where this rule will not apply – so beware.

  1. Unless the discussions are genuinely ‘without prejudice’ under the current rules (i.e. discussions in relation to settling a dispute) then the protection of pre-termination negotiations only applies to ‘normal’ unfair dismissal claims. Any discrimination claims, breach of contract claims and critically any automatic unfair dismissal claims (whistleblowing) will not be covered. As you seldom feel confident enough to be sure that someone will not consider a dismissal to be related to whistleblowing, relying on these new protections will require a leap of faith in many cases.
  2. The second exception is that whilst you are negotiating, you cannot partake of any ‘improper behaviour’. If you do, the discussions will no longer be inadmissible. The precise meaning of ‘improper behaviour’ will be something that we will watch develop over the coming years (and the, as yet unfinalised, ACAS code on settlement agreements may also help) but in the meantime employers needs to be extremely careful and measured when conducting such discussions to avoid losing the protection.
  3. The pre-termination negotiations will still be admissible to the Employment Tribunal if a party wants to make a costs application on the basis that an offer has been unreasonably refused, so the law in that area remains the same as it currently is under the ‘without prejudice’ rule.

You may have also heard in the news that fees are now in place in the Employment Tribunal for anyone wishing to bring a claim. The costs range from £150 for lodging the claim to £950 for the actual hearing depending on the type of claim you are bringing. Unfair dismissal damages are now capped at £74,200 or a year’s pay – whichever is the greater.

The intention of these changes is to allow employers to manage difficult workplace issues more easily and cheaply, allowing employees to leave more graciously rather than having to face protracted performance proceedings. This could therefore result in a positive outcome for all, but a word of warning – employers should embark on these pre-termination negotiations with extreme caution and advanced planning to ensure that they do fall within these new provisions and really do remain off the record.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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Orrick, Herrington & Sutcliffe LLP

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