The Government has this week published a key amendment to the Enterprise and Regulatory Reform Bill. Whilst the Bill's intention is to prevent Employment Tribunals, when they are hearing claims of unfair dismissal, from taking into account any pre-termination settlement offers or discussions, the proposed clause raises a number of questions as to how it would work in practice.

On 11 June 2012, the Business Secretary, Vince Cable, announced that he would amend the bill to facilitate and increase the use of settlement agreements (currently known as "compromise agreements"), enabling employers to have pre-termination discussions with employees without fear of what was said during such discussions being referred to in unfair dismissal proceedings.

The proposed wording, which would insert a new section into the Employment Rights Act 1996, was tabled in Committee this week. The wording provides that:

"...an employment tribunal may not take account of any offer made or discussions held, before the termination of the employment in question, with a view to it being terminated on terms agreed between the employer and the employee..."

The clause is reminiscent of what the government previously referred to as "protected conversations", on which there is ongoing consultation. However, the scope of the protection for employers, in comparison to protected conversations, is limited.

  • It only comes into play on unfair dismissal claims. Discrimination and breach of contract claims will not be affected by the new rules. If a discrimination claim is brought at the same time as an unfair dismissal claim, it seems that the "protected conversation" can be taken into account by a Tribunal in the unfair dismissal claim
  • It does not apply to automatic unfair dismissal claims, such as those based on whistleblowing
  • It does not apply (or only applies to a limited extent) where a Tribunal deems an employer's behaviour as "improper." There will inevitably be disputes about whether the content of any discussion constitutes "impropriety", thereby defeating the very concept of a "protected conversation". We can envisage litigation over every aspect of the clause and whether the discussion should be excluded from evidence in an unfair dismissal claim. Indeed, in an ongoing relationship where does the "protected conversation" start and end?
  • There is a certain unreality to the idea that one can ring-fence a pre-termination discussion with an employee and not expect it to damage the employment relationship. Whilst the proposed legislation sets out what is admissible in unfair dismissal proceedings, it does not anticipate the other routes by which such discussions could be brought into the open. For instance, an employee could bring a grievance in relation to what was said, which if the employer fails to address, could lead to a claim for constructive unfair dismissal
  • And finally, how does this provision sit alongside the duty of trust and confidence? If settlement discussions break down and the employee is fully aware of the employer's desire to end the relationship, it is difficult to see how trust and confidence can remain

The current wording does not give employers the certainty that they need if this development is to have any meaningful effect. It is difficult to imagine that an employer would risk a discussion that could result in difficulties not only on a legal basis, but from the point of view of breaching employee trust, confidence and morale.

The Enterprise and Regulatory Reform Bill is currently being scrutinised by the Public Bill committee. The committee is taking evidence from various organisations and individuals and is expected to provide a report by 17 July 2012. In light of the issues highlighted above, it may well be subject to further amendment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.