Thursday, 5 July 2012

Settlement Agreements

Settlement agreements

What looked like a re-naming exercise has become something more complicated
Vince Cable
The Enterprise and Regulatory Reform Bill entered the committee stage in Parliament in June, apparently minus the controversial Beecroft proposal for “compensated no-fault dismissals” but with an additional clause on “settlement agreements”. Business secretary Vince Cable described the agreements as “smart, fair and pro-business reforms” which would “ease the handling of workplace disputes”.

In the original version of the bill, this was just a re-naming exercise – “compromise” was to become “settlement” agreement in various employment laws. But Pinsent Masons partner Christopher Mordue believes they will now represent a more substantial change. Compromise agreements are used right across the board, from small companies to large, and are already “an everyday feature of HR and employment law”, he says.

It does look as if the new-style agreements will be different. Compromise agreements need a dispute to be in progress; it seems settlement agreements won’t. Furthermore, they will not be admissible in tribunal evidence, reviving the “protected conversation” idea. There is also a suggestion that employees won’t require legal advice – currently paid for by employers – before signing.

“If the intention is to make settlement agreements easier, then I can’t see anything else they could do that would be more helpful for employers – that’s the bit in practice that generates expense,” Mordue says. He thinks it would be possible to replace the legal advice requirement with standard information advising employees that by signing the agreement, they end their employment and receive a sum of money in return for giving up the right to a tribunal. “If employees know what they’re doing, there won’t be any disadvantage to them,” he says. “There’s nothing to stop them getting legal advice.”

Strangely, only unfair dismissal is referred to in the statement. “But that would be nonsense,” says Mordue. “An employer wants an agreement to be in full and final settlement of every possible claim – they don’t want one rule for unfair dismissal and another for discrimination claims.”

The committee stage of the bill closes on 17 July and BIS will produce a consultation during the summer.

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