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14 February 2013

Government proposals on ending the employment relationship

The Government has published its response to the recent consultation, Ending the Employment Relationship, setting out its plans for amending the unfair dismissal compensatory award and proposed measures to encourage the use of ‘settlement agreements’.  ACAS has since issued its own consultation on a new Code of Practice on Settlement Agreements.

The Ending the Employment Relationship consultation sought views on measures included in the Enterprise and Regulatory Reform Bill (ERR Bill) to amend the unfair dismissal compensatory award, and to make pre-termination settlement negotiations inadmissible in unfair dismissal claims.

The Government has confirmed that it will proceed with these measures, and that a new statutory code of practice and accompanying guidance on how to resolve workplace disputes will be issued, including a model settlement agreement and template letters.

Settlement agreements

Under the provisions of the ERR Bill, settlement offers made pre-termination will become inadmissible in subsequent claims for unfair dismissal. 

This is intended to avoid the existing difficulty in making such offers, whereby the employee may resign and claim constructive unfair dismissal.  In circumstances where there is no pre-existing dispute with the employee, such discussions are not currently covered by the rules of privilege, meaning that evidence of the discussions can be introduced in a subsequent tribunal claim to support the employee’s case.

Under the proposed changes, employers (or employees) will be able to put forward suggestions for the early termination of employment, without the need to follow a full procedure unless settlement terms cannot be agreed.  Such discussions will not generally be admissible in evidence.  Compromise agreements will be renamed under the ERR Bill as ‘settlement agreements’.

Settlement offers will have to be put in writing and employees given a reasonable time to respond.  The employer will not be permitted to act in a discriminatory or ‘improper’ way when making an offer of settlement, otherwise evidence of the settlement offer will become admissible in tribunal proceedings.

The Government will not be setting a guideline tariff for payments to be made under settlement agreements.  Instead, non-statutory guidance will include factors for both employers and employees to consider when negotiating a financial settlement.

Code of Practice

Acas has now issued a draft statutory Code of Practice on Settlement Agreements, for consultation.

The draft Code provides a brief explanation of the new law relating to settlement agreements, some basic guidance on how to offer a voluntary settlement (including example template letters to the employee) and guidance on what would amount to ‘improper behaviour’ on the part of the employer, resulting in evidence of the negotiations becoming potentially admissible in evidence. 

To accompany the Code, there will also be non-statutory guidance and a model settlement agreement, neither of which have yet been published.

The draft Code is available here.  The consultation closes on 9 April 2013.

Unfair dismissal compensation

The Government has confirmed that the ERR Bill will introduce a 12 months’ pay cap on the unfair dismissal compensatory award, with the overall cap on compensation (now at £74,200, from 1 February 2013) remaining in place.  Compensation for successful claims of discrimination will remain unlimited.

This is likely to have a greater impact on those lower earners who are likely to find it harder to find another job and who will therefore have a longer period of financial loss, although the Government has stated that it believes very few will be disadvantaged by the 12 month pay cap.

The Enterprise and Regulatory Reform Bill is expected to receive Royal Assent during spring 2013, but it is likely that the provisions relating to pre-termination negotiations and unfair dismissal compensation will take effect during summer 2013.

A copy of the Government’s response to the Ending the Employment Relationship consultation is available here.