How to Offer a Settlement Agreement to an Employee While They Are Still Employed
There are a number of reasons why, as a manager, you may want to offer a settlement to an employee to leave. It may be that the business has suffered losses, making redundancies seem inevitable, or perhaps an employee just isn’t right for their role anymore, perhaps because of a disciplinary or capability issue, or the more subtle (but very common) issue of a personality clash in the office.
Whatever your reason for wanting to say goodbye to an employee, there are a number of things to consider;
What is a Settlement Agreement?
A Settlement Agreement (once known as a Compromise Agreement) is a contract that essentially says that in exchange for an employee agreeing not to sue their employer in the Employment Tribunal for the loss of their job, the company will pay them a tax free sum, known more formally as an ex gratia sum. (NB: only the first £30,000 is tax free).
The document must be signed by the company and the employee. However, in order for the agreement to be valid, a lawyer representing the employee must also sign a certificate (appended to the agreement) confirming that they have advised the employee on the terms of the Settlement Agreement, to make sure the employee understands what they are signing, i.e. waiving their statutory right to sue.
Settlement Agreements are regularly signed as a means of ending claims that have already been brought against a company in the Employment Tribunal. However, they can also be used before an employee has left the business, as a means of bringing their employment to an end without having to follow a painful employment law procedure and while avoiding an uncomfortable period of “waiting to see if a claim comes in”, after the employee has left.
Protected Conversations (also known as pre-termination negotiations)
If you have identified an employee who is likely to need to leave the business you may be able to invite them to attend a meeting where you will hold a “protected conversation”. This is an off-the-record conversation where you can explain to the employee why it may be necessary for them to leave. For example, if the business is facing impending redundancies, the conversation with the employee would go along the lines of explaining the potential redundancy situation, your desire not to have to put the employee through a redundancy procedure and the offer of the tax-free sum to incentivise the employee to agree to end their employment via the Settlement Agreement instead of going through the procedure.
Crucially, the employee is entitled not to accept the offer. If they don’t wish to accept you will need to be prepared to conduct the employment related procedure you were trying to avoid. The potential pitfall when this happens is that, by the time the procedure gets underway, the employee is likely to take the view that the outcome of their dismissal is pre-determined and that the procedure is a farce, which may make them more likely to sue for unfair dismissal. The main defence for this, as for any potential unfair dismissal claim, would be to run a strong procedure, with a view to staving off any allegation of the outcome being pre-determined. But this can be easier said than done if the employee is already of the opinion that the outcome is pre-determined and, as a result, interprets things that happen over the course of the procedure in the light of that view. With that in mind, it is sensible to offer a tax free sum to the employee that they are likely to accept, and to be open to reasonable negotiation with the employee.
As the conversation you hold during a protected conversation is off the record, provided you have been clear with the employee about the off-the-record nature of the meeting, anything that is said at that meeting would not have to be disclosed to an Employment Tribunal if the employee were ultimately to bring a claim against you. However, there is a caveat to that which is that your conversation only maintains its protected “off the record” status provided the claim brought against you is only for ordinary unfair dismissal.
If the employee takes the view that the true reason behind the protected conversation is because you are trying to dismiss them for a discriminatory reason (or owing to some other lesser known potential claims including whistleblowing, other dismissals which are automatically unfair and unlawful deduction from wages), then they are entitled to refer to the protected conversation as part of any claim they may bring alleging discrimination (or one of the other claims). Clearly this has the potential to cause a lot of issues, so it is something to be taken very seriously.
If you think, upon being informed that the business believes they should leave, there is potential for an employee to allege discrimination (or another claim) against you, then the path of a protected conversation is not for you. Instead, you should take legal advice on the specific issues relating to that employee.
For example, if an employee tells her employer she is pregnant and shortly after that she is invited to a protected conversation meeting where her potential dismissal is discussed, it is easy to see how that could come across to her as being motivated by her pregnancy, therefore being discriminatory. Or, if an employee has whistle blown against the company in the past, the employee may take the view that the company has wanted to get rid of them ever since and tie the protected conversation back to their past concerns. Many clients have said to me in relation to this point that they can’t see why a discrimination/whistleblowing etc claim would be brought against them when their reasons for the potential dismissal are entirely (and quite rightly) genuine. This misses the point. It is important to consider how the possible dismissal may look to the employee, because they are the individuals who will decide whether they wish to commence a claim, not the employer.
How to commence a protected conversation
If you are confident that the best way to part ways with an employee is via a protected conversation and a Settlement Agreement (i.e. when there is no existing dispute and no likelihood of misinterpretation by the employee) you will need to follow certain steps. I highly recommend you seek legal advice in relation to this;
Have your Settlement Agreement ready. Once you have had your discussion with the employee you want to be in a position to provide them with a draft Settlement Agreement as soon as possible after the meeting. You can instruct a solicitor to draft this for you . It will also help to have given serious thought to the offer you wish to make in advance of the meeting, which should make it easier to answer any questions the employee has about it.
Give some thought as to whether you want the employee to return to work after the meeting or if you would prefer them to go home. There are pros and cons to both options, not least, what you should say to the other members of staff if the individual is sent home suddenly, or how you would explain away the employee’s absence in an Employment Tribunal if they go home but then fail to sign the Settlement Agreement and ultimately bring a claim against you.
Prepare what you want to say to the employee, set out prompts that you can follow so that nothing important is forgotten. Your aim is to ensure the employee understands the nature of the meeting (in particular, it is vital that the employee is informed when you reach the part of the meeting that is intended to be off-the-record) and to provide them with enough information to understand why the need for their possible dismissal has arisen.
Crucially, you must ensure the employee does not feel under undue pressure to accept the settlement being offered (such as being informed that if they do not sign it they will definitely lose their job). It is acceptable to explain the reasons why it may be necessary to dismiss them, but if the deal is not signed you would need to go through the relevant employment law procedure in order to formally determine whether they should be dismissed. No final decision should be made until that procedure is complete. Similarly, any other “improper behaviour” could also lead to the protected status of the conversation being lost (for example, being threatening or abusive during the meeting).
Once you are prepared, invite the employee to the meeting. It is considered good practise to offer the employee the opportunity to be accompanied to the meeting by a work colleague or a trade union representative. However, there is a balance to be found between helping the employee and unintentionally intimidating them before the meeting has started due to sounding too formal. You will need to make a judgment on this.
Once the meeting starts explain the reasons for it to the employee. It may be helpful to hold some of the discussion on an open basis, for example if you explain why it may be necessary to carry out a redundancy procedure, this could also form the beginning stage of that procedure. Once you have completed the parts of the meeting that are not off the record you should ask the employee if they are willing to speak on an off-the-record basis. If the employee says no, then the meeting will need to end there and you should take legal advice on next steps. However, many employees agree to continue the meeting, at which point you should make a note of their agreement and then explain your offer.
At the end of the meeting you should check whether the employee has any questions and confirm that you will email them a copy of the proposed settlement for them to discuss with their lawyer. In order for your offer to be deemed fair, you should give the employee at least 10 calendar days to decide whether they wish to accept the offer.
From that point on, a negotiation as to the terms of the offer is likely to ensue followed, hopefully, by the employee’s departure on the agreed terms. The employee should have had a swift and dignified exit at this point, while simultaneously the company is protected from the potential of an Employment Tribunal claim.
If you would like to read more about how to conduct a protected conversation and offer a settlement agreement, the ACAS website provides information on this. However, owing to the complexities that can be involved in dismissing an employee, particularly when it is unexpected, my recommendation is to take legal advice. Puffin People would be happy to help with this.
