On 14 September Vince Cable announced the ending of the employment relationship consultation which covers ways to encourage the use of compromise agreements, to be renamed “settlement agreements”, as a way for parties reaching mutual agreement where the employment relationship has broken down

Proposals

The consultation, which closes on 23 November 2012, has sought views on proposals that aim to allow both parties to avoid tribunal costs and stresses involved. The consultation paper acknowledges

“...that it is already common practice for employers and employees to enter into a compromise agreement whereby the employee leaves the employment, receiving some level of compensatory payment in return for a waiver of their rights to bring employment tribunal claims”.

However the paper highlights that there are limitations to compromise agreements and the protections that currently exist for both employer and employee. The Government is therefore seeking to introduce measures to promote them.

The proposals which the consultation document seeks views on are:

  • A statutory Acas code of practice on settlement agreements, to include:
    • An optional model settlement agreement and guidance notes
    • Optional model letters that employers can use to propose settlement terms in a range of situations
  • A "guideline tariff" to help parties set the severance payment

Aims

The aims of the proposals are to:

  • Make it easier for parties to have an open dialogue where the relationship is no longer working  without worrying that these discussions could be used against them should there be an unfair dismissal claim
  • Facilitate parties exploring settlement agreement “creating a faster track to settlement - while reducing the number of cases going to tribunal”
  • Provide organisations with confidence and clarity on what they are able to do when managing situations where the relationship has broken down
  • Offer parties more realistic expectations regarding the level of damages to be expected at Employment Tribunal

While the foreword to the consultation does acknowledge that the Government should not interfere in individual employment relationships, the proposed management of settlement agreements through a statutory code with template letters and agreements does appear at odds with the Government’s statement it does not want to create "an over-engineered process which ties up the parties in red tape".

As noted above the Government’s view is that this will provide confidence to employers with the consultation suggesting some employers could still prefer agreements drafted by their lawyers.