Will settlement discussions really make it easier for employers to dismiss staff?

Last year the Government considered introducing “protected conversations” as a means of helping employers to have difficult conversations with their employees about a whole range of issues, without fear of their discussions being used against them in an Employment Tribunal. That idea was abandoned because of perceived problems. Instead “settlement discussions” will be introduced sometime during the summer.

The idea is that employers will be able to use the structure of a settlement discussion to discuss poor performance or misconduct issues, as an alternative to going through a lengthy process. Provided certain procedural safeguards are followed (which are set out in a statutory ACAS Code – currently in a draft format and subject to consultation which ended on 9 April), the offer of settlement will not be able to be referred to in any subsequent unfair dismissal claim, or constructive unfair dismissal claim where the employee has resigned as a result of a settlement offer being made. At least that is the theory. The reality is likely to be much more complex.

For example, claimants already misunderstand the legal concept of a “without prejudice” offer and will often attempt to refer to settlement discussions in their claim form or in evidence. A tribunal will ignore this when determining the claim, but employers are likely to be worried that this may impact on their credibility.

Both employers and employees can propose a settlement offer, but the without prejudice status of this (and any subsequent discussions) will be lost if there is fraud, undue influence or other improper behaviour such as discrimination. It has been left to ACAS to provide some clarity about what is meant by these terms and its draft guidance suggests that it will constitute “undue influence” where an employer does not allow the employee a minimum period to consider an offer (currently seven days), or where the employer reduces the value of a financial offer during this minimum period. Similarly, an employer who states that the employee will be dismissed if he/she rejects the offer will also be guilty of exerting undue pressure.

It is not just the employer’s behaviour that will be scrutinised. Undue pressure will be proven where an employee threatens to undermine an organisation’s reputation unless it agrees a financial settlement.

The draft ACAS guidance states that “it is not necessary to have gone through a disciplinary or grievance process, or even started one, before making an offer”. It has produced draft “model” letters which reinforce that view. These are drafted to express the employer’s concerns about the employee’s poor performance or conduct and state that the employee will be invited to a meeting to discuss these in the “near future”. The offer is then set out as an “alternative” to the formal process. The employee is told how much he would receive and when his employment will end (and any other relevant information, such as whether he can expect a reference etc).

That may sound an attractive short cut, but there are huge risks in making an offer before the employee is even aware that there is a problem, or even at the early stages of a formal process. This is because if the offer is rejected, the employer will have to start, or continue with a formal process – and this will be much harder because the employee is likely to believe the process to be a sham that will result in dismissal. He may begin to look for other reasons to support this view, such as discrimination in order to get the conversation before the tribunal. Even if the employee cannot find any evidence to support an alternative complaint, he is likely to disrupt the process by raising grievances (and possibly at every stage of the formal process).

Dealing with performance or conduct issues in this way may also cause reputational damage to those employers who promote strong workplace values and engagement with their staff.

Businesses will have to weigh up the risks. If they decide to use this mechanism, they will need to decide who can instigate the conversation and provide training about what they can/cannot say. Many of our clients have told us that they intend to leave this to their HR departments to avoid managers making embarrassing and potentially costly mistakes and may only use it where dismissal is likely anyway.

Put simply, and contrary to the rhetoric, settlement discussions are not a short cut – the employer must have the difficult conversations with its employees first. Training managers to be able to confidently tackle issues at an early stage is a much better investment and one that is likely to reduce conflict and employment claims.

Where the conversation does lead to an agreement, it will be recorded in a settlement agreement – a compromise agreement in all but name. It will be subject to the same safeguards and expense as currently exist for compromise agreements and will need to be signed off by an advisor.

-Glenn Hayes

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