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Government plans allowing employers to offer 'settlement agreements' before formal tribunal disputes, welcomed by CIPD

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The Government has unveiled plans for “greater business flexibility and quicker resolution for workplace disputes”.

In his opening speech at the second reading of the Enterprise and Regulatory Reform Bill, the business secretary Vince Cable set out the Government's plans to introduce a measure to boost business confidence and ease the handling of workplace disputes through facilitating the use of settlement agreements between employers and employees.

Under these measures, 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 tribunal 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.

According to the Department of Business Innovation and Skills (BIS) evidence from the private sector shows that a sensible compromise can be reached in the majority of cases.

Cable said: "This Bill is an important part of this Government's plan for long-term growth: fostering enterprise, supporting business and creating jobs.

"Settlement agreements are smart, fair and pro-business reforms, which deliver results for employees and employers. It empowers employers by enabling them to keep their workforce flexible and encouraging alternative ways of solving workplace problems rather than resorting to a tribunal. But crucially it does so in a way that keeps the necessary protections for employees in place.

"Our proposed measures and guidance will achieve this objective. Making this approach simple to use will encourage employers to take on staff in the knowledge this there is an effective mechanism for dealing with serious problems if they occur.

"We have spent time ensuring we have got this measure right and I truly believe this a smart confidence boosting measure for business."

Employment relations minister Norman Lamb added: "There are inevitably occasions when the employment relationship doesn't work out. Employers have to feel confident in dealing with situations such as where an employee isn't pulling their weight or where someone is unreliable or even guilty of misconduct.

"In these instances it is sometimes in the best interests of both employee and employer to end the relationship speedily by reaching a settlement. An employee leaving by agreement can do so with their dignity intact. The employer secures peace of mind knowing that they will not face expensive tribunal proceedings.

"We know that many large companies use settlement agreements in this type of situation but we want to ensure that all employers - large and small - can make use of them without incurring large legal fees."

The Government wants to encourage greater use of settlement agreements and make it easier and quicker for employers - including SMEs - and employees to end the employment relationship by mutual agreement in a way that protects workers rights but helps businesses remain flexible.

The agreements are currently available for employers in some circumstances. However, Government wants to encourage more businesses to use them, including before they have reached the stage of a formal dispute. By making settlement offers and discussions inadmissible in unfair dismissal claims, businesses can be more confident that they will not be used against them at a tribunal.

The offer could be in the form of a letter to the employee and include detail on what kind of payment could be expected while employees can still choose whether to accept the offer. Settlement agreements should not replace proper performance management but there are occasions when both parties recognise that it makes sense to end the employment relationship. If an employee does not accept then the employer will still need to follow a fair process before finally deciding to dismiss the employee.

But according to the CIPD, the Government's proposal merits careful consideration, and is a "definite improvement on the blunt weapon of compensated no-fault dismissal proposed by Adrian Beecroft".

But as the Government publishes further details of what it is proposing and how it will work in practice, the CIPD says it is imperative that it is made clear that settlement agreements should be used to encourage better and more consistent performance management by employers, not as a substitute for it.

Mike Emmott, employee relations adviser at the CIPD, said: "The principle that employers should be able to manage the performance of their employees effectively, without fearing expensive and time consuming tribunals, is a good one. The reality that employment relationships sometimes don't work out, and that compromise agreements can be used as a quick, face-saving way out for employees and employers is also recognised. However, an employer's first point of call shouldn't be to stick a compromise agreement on the table and show staff the door if an employee's 'face doesn't fit'. This can only have a corrosive effect on employee engagement at an individual firm level, and job security and its hand-in-hand relationship with consumer confidence at a macroeconomic level. Perhaps most importantly, there is a law of basic common decency that says employers shouldn't show employees that door for no good reason - undermining this risks undermining mutual trust and confidence in the workplace with catastrophic consequences for organisational performance and competitiveness.

"It is important that, in promoting these new proposals, the government exercises its duty of care to employers in not overselling or oversimplifying what it is doing here. Employers need to understand that settlement agreements tabled in the context of without prejudice conversations will do nothing to protect them from discrimination or constructive dismissal claims if they act improperly.

"The government also needs to take extreme care to avoid the potential for a truly epic example of the law of unintended consequences. While the proposal is intended to cut red-tape and make life easier for employers, without very careful drafting there is a very real potential for the creation of complex disputes and legal arguments about whether any given conversation or settlement agreement falls within the new regulation. This could create far more disputes and red-tape than the proposal is intended to cut through.

"In the final analysis, though, the simple message for employers is that, with or without 'settlement agreements' there is no substitute for good management and proper performance management. Get that right, and there is no reason under the existing law why you can't remove underperforming employees and replace them with the ones you need to drive your business forward". The new clauses will be tabled in the forthcoming Committee stage. A consultation will be published in the summer on the principles of guidance for using settlement agreements, including draft letters and model templates for employers and employees to use. We want to make it as easy as possible for small employers to use fast settlement agreements without always having to resort to legal advice. Published on 23 May 2012, the Bill contains measures improving the employment tribunal system, setting up the new Competition and Markets Authority, enshrining the green purpose of the UK Green Investment Bank, on directors' pay and other measures aimed at helping long term growth. The Bill continues its passage through Parliament.

of law-abiding employers."

Last year Citizens Advice Bureaux in England and Wales helped with 523,500 employment problems.

 

The government's proposal on 'Settlement Agreements' merits careful consideration, and is a definite improvement on the blunt weapon of compensated no-fault dismissal proposed by Adrian Beecroft, according to the Chartered Institute of Personnel and Development (CIPD).

However, as the government publishes further details of what they are proposing and how it will work in practice, the CIPD says it is imperative that it is made clear that settlement agreements should be used to encourage better and more consistent performance management by employers, not as a substitute for it.

Mike Emmott, Employee Relations Adviser at the CIPD, said: "The principle that employers should be able to manage the performance of their employees effectively, without fearing expensive and time consuming tribunals, is a good one. The reality that employment relationships sometimes don't work out, and that compromise agreements can be used as a quick, face-saving way out for employees and employers is also recognised. However, an employer's first point of call shouldn't be to stick a compromise agreement on the table and show staff the door if an employee's 'face doesn't fit'. This can only have a corrosive effect on employee engagement at an individual firm level, and job security and its hand-in-hand relationship with consumer confidence at a macroeconomic level. Perhaps most importantly, there is a law of basic common decency that says employers shouldn't show employees that door for no good reason - undermining this risks undermining mutual trust and confidence in the workplace with catastrophic consequences for organisational performance and competitiveness.

"It is important that, in promoting these new proposals, the government exercises its duty of care to employers in not overselling or oversimplifying what it is doing here. Employers need to understand that settlement agreements tabled in the context of without prejudice conversations will do nothing to protect them from discrimination or constructive dismissal claims if they act improperly.

"The government also needs to take extreme care to avoid the potential for a truly epic example of the law of unintended consequences. While the proposal is intended to cut red-tape and make life easier for employers, without very careful drafting there is a very real potential for the creation of complex disputes and legal arguments about whether any given conversation or settlement agreement falls within the new regulation. This could create far more disputes and red-tape than the proposal is intended to cut through.

"In the final analysis, though, the simple message for employers is that, with or without 'settlement agreements' there is no substitute for good management and proper performance management. Get that right, and there is no reason under the existing law why you can't remove underperforming employees and replace them with the ones you need to drive your business forward".