The Enterprise and Regulatory Reform Bill had its second reading in Parliament last week. The Government is proposing that employers will be able to offer settlement agreements before a formal dispute arises and will be legally protected from this offer being used as evidence in an unfair dismissal case. Employees will also continue to enjoy full protection of their employment rights, as they can choose to reject the offer of a settlement agreement and proceed to a tribunal.
Settlement Agreements are a simplified version of a Compromise Agreement, already in use by larger employers and the Government hopes that their introduction will encourage more employers, particularly smaller ones, to use them before formal disputes arise.
So are settlement agreements simply little more than a name change for Compromise Agreements? The main difference of a settlement agreement is that the offers and discussions of a proposed settlement instigated by an employer cannot be used, or referred to, in unfair dismissal claims at an employment tribunal. Thus, an employer will be allowed to approach an employee freely about a potential termination of their employment without any prior disciplinary process. At present, if an employer approached an employee out of the blue to have a frank discussion about ending the employee’s employment, the employee could use this as ammunition and claim constructive dismissal (assuming the employee has the qualifying period of service) by arguing that their continuing role is untenable.
Therefore, the proposal to beef up settlement agreements will offer many employers the certainty and security they crave.