Government outlines settlement agreement proposals

The Government says the proposals will make settlement of workplace disputes faster and more flexible. It adds that employees will 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. It states: "Evidence from the private sector shows that a sensible compromise can be reached in the majority of cases."

The proposals will be announced at the opening the second reading of the Enterprise and Regulatory Reform Bill today. Business Secretary Vince 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 said: “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 says it 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.

It adds that 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.

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.

The new proposals were greeted with caution by employment experts. The Chartered Institute of Personnel and Development said settlement agreements should not be seen as a substitute for good management and warned they had to potential to create more red tape and more complex legal wranglings.

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 the door for no good reason - undermining this risks undermining mutual trust and confidence in the workplace with catastrophic consequences for organisational performance and competitiveness."