18 October 2016

Our recent seminar on managing exits explored some of the legal and practical issues relating to employee exits, and possible options for smoothing the way.

Whether it is a performance management process, disciplinary investigation, redundancy process, or absence management, the law requires an employer (certainly where an employee has 2 years’ service or more) to take certain procedural steps before being able to dismiss an employee. The decision must also be in all the circumstances fair and reasonable. The employee is of course entitled to challenge the decision at an employment tribunal and that can mean inconvenience and expense for the employer. Even where the employee has less than 2 years’ service and cannot claim “normal” unfair dismissal, there is the risk of claims for discrimination or “automatically unfair” dismissal, so the employer must tread very carefully.

These processes can be time consuming and disruptive. Clients often ask us if there is a shortcut which would allow them to “pay off” the employee quickly and easily without having to go through the full process.

Traditionally, the concern about going to an employee suggesting that they leave the employer’s employment in exchange for a payment, was that this could amount to constructive dismissal. Alternatively, if the conversation precedes (for example) a performance management or disciplinary process, and that process then leads (following rejection of the employer’s exit offer) to termination of employment, an employee could potentially argue that the whole process was predetermined and a “sham” given that the employer indicated at the outset that he wanted the employee to consider leaving his employment.

The regime of “pre termination negotiations” or “protected conversations” seeks to address this. The idea is that an employer can make an approach to an employee (or vice versa) to explore the possibility of employment coming to an end on mutually agreed terms (to be set out in a Settlement Agreement) and that proposal will in certain circumstances be “off the record” and inadmissible in a subsequent tribunal hearing. The employer need not, therefore, be concerned about the offer being “held against him” as suggested above.

However, the proposal will be off the record only in fairly limited circumstances, namely a claim for “normal” unfair dismissal. The discussion will be admissible and can be referred to in claims:

• Where the employee alleges discrimination (even if that allegation is not well founded)
• Where the employee claims “automatically unfair” dismissal (i.e. where he rejects the offer and is then dismissed, he alleges in a subsequent claim that the dismissal was due to reasons such as whistleblowing, health and safety complaints etc.)
• Where the claim is for breach of contract, wages, detriment and indeed any tribunal claim other than “basic” unfair dismissal
• Where there has been “improper conduct” by the employer in making the proposal, for example where the employer has been threatening or abusive, or where he has placed undue pressure on the employee to accept the proposal

There are so many exceptions to the “off the record” nature of the “protected conversation” that the best advice is to assume that what you say to the employee will be admissible at tribunal, and ensure you would be happy to discuss the conversation, and the reasons for it, at a hearing.

Employers should consider the following advice:-

• Only make an “exit package” offer to an employee if there is good and proper reason for it (and in making the offer you are not acting in a discriminatory manner)
• Be clear before having the meeting what the offer is going to be
• Be clear as to your “plan B” if the employee is not willing to agree an exit
• ACAS suggest it is best practice to allow the employee to have a companion at the meeting, but we are sceptical about that, and in most cases would advise against it
• Explain to the employee at the meeting what the reasons are for making the proposal and, crucially, what you will do if the employee does not agree to leave (you cannot say that the employee will be dismissed; it is likely that the employer’s position will be that an internal process would be followed, and we do not know what the outcome of that process will be)
• Stress to the employee that he does not need to enter into discussion, but should take reasonable time to consider the offer
• Set out the details of the offer – payments to be made, termination date, contribution to legal fees, will a reference be provided, etc.
• Confirm that the discussion is confidential, and refer to the “protected” nature of the conversation
• After the meeting, issue a letter confirming the matters discussed
• Confirm that any agreement will be subject to the parties entering into a legally binding Settlement Agreement on which the employee will need to take legal advice. If you are not producing the Agreement at the meeting, the employee should let you know within a few days whether he is interested in the offer in principle, at which point an Agreement can be issued for him to discuss with his lawyer

The “protected conversation” regime sits alongside the existing “without prejudice” rule, which states that a settlement proposal with a view to resolving a “live dispute” between the parties will be off the record and inadmissible in subsequent litigation. The “protected conversation” route can be seen as wider, as there is no need for a live dispute, but also narrower, given that there are so many exceptions to the discussion being “off the record”. Employers are perfectly entitled to refer to the discussion as being both without prejudice and a pre-termination negotiation.

It is certainly not the case that these discussions are always the answer when you are dealing with issues of performance, conduct, absence etc, and it will often be preferable to implement your policies and robustly manage the situation. Employers will want to avoid setting a precedent that all problems are resolved by throwing money at them, no matter how undeserving the employee is of receiving a “windfall” termination payment. However, this route is always worth remembering as an option and there may be reasons in a particular case why this is attractive. For example:

• Avoid time consuming processes at an important time for the business when there needs to be a focus on delivering a particular project, and when you need all staff to be “up to speed” and performing to the required level
• Allow a long serving employee to leave with dignity on an agreed basis
• Avoid any risk of employees continuing to have access to clients and confidential information while going through a formal process
• Where you realise the employee is likely to be dismissed and will inevitably pursue claims, and you may have concerns about the cost/time involved in defending these claims, or indeed your ability to successfully do so.

In our experience, where the employer approaches matters carefully and properly, with a detailed script provided by legal advisers, we have found that in the vast majority of cases these types of exit discussions lead to matters being resolved on an agreed basis and a Settlement Agreement being signed. However, we have also seen it “going wrong” where the employer either does not take, or does not follow, legal advice. The “protected conversation” route is an important option and a valuable part of your toolkit, but needs to be handled carefully and with the benefit of expert advice.

Our team of employment lawyers advise on these issues on a regular basis and would be happy to assist in guiding you through the minefield.

Contact Caroline Carr Partner and Accredited Specialist in Employment Law   E. cac@bto.co.uk T: 0141 221 8012 

Don't miss our Employment Law Update 2016 - Seminars in November.