Settlement Agreements – a way of ending employment relationships in a fair and consensual way?

On the 14th September 2012, Business Secretary, Vince Cable, announced proposed measures to encourage the use of Compromise Agreements, which, if implemented, will be renamed “Settlement Agreements”, as set out in the government’s consultation paper, ‘Ending the Employment Relationship’.

The consultation paper seeks views on proposals to simplify and speed up the process of ending the relationship between an employee and employer when it breaks down.  The government appears to support the use of settlement agreements as a way of ending employment relationships in a fair and consensual way.  The Consultation has now closed and the published response is awaited.

Some of the proposals put forward under the Consultation are for the following:-

  • A guideline tariff to help parties calculate any severance payments.
  • A statutory ACAS code of practice on settlement agreements which would include optional letters, model letters and model settlement agreements to cover various situations. Under the code settlement offers by either party would be inadmissible as evidence only in unfair dismissal cases.

The proposed options for the guidance tariff include possibly setting a formula for calculating payments or in the alternative, a list of considerations that an employer should take into account.  However initial concerns have already been raised by some that this would end up with there being a minimum calculated figure that employees could then use for upward negotiation.

There are other fears that the new proposals regarding settlement agreements could lead to bad practice and will not protect employers from tribunal claims, as they are proposed to do.

With regard to model letters and model settlement agreements, the government has acknowledged that each dispute is different and any agreements would have to be tailored to the circumstances.  It quite rightly recommends that the parties would need to seek legal advice to ensure that the agreement reflects any given particular situation.

Whether the proposals will be implemented and, if so, in what form, remains to be seen. There will be more information on this to follow once the response is published.


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