Tuesday, 27 March 2012

Whose fault is it anyway?

The department for Business, Innovation and Skills (BIS) has issued a "call for evidence" in relation to two sets of proposals:

1) The simplification of the ACAS Code of Practice on Discipline and Grievance, to make it easier for smaller employers to comply

2) The introduction of "compensated no fault dismissals" for micro-businesses (those with fewer than 10 employees)

The revision of the ACAS Code as it applies to small employers would clearly be welcomed.  Some of the code's provisions are particularly onerous for small businesses, such as the requirement that different people undertake the roles of conducting an  investigation and holding a disciplinary hearing.  Although it is the case that no single provision of the code is legally binding in itself, and Tribunals are required to take into account the size and administrative resources of an employer in determining whether a failure to follow an aspect of the code is reasonable, a revision of the code for small employers would remove the uncertainty over what any particular Tribunal will deem to be fair in the circumstances.

The benefits of "compensated no-fault dismissals" are far less clear.  Employers can already make use of the recognised tool of Compromise Agreements to bring a "mutually agreed" end to an employment relationship.  Whilst "compensated no fault dismissals" may allow employers to terminate a relationship without agreement, and would avoid the legalities (and legal costs) associated with drawing up a Compromise Agreement, they will only prevent employees bringing unfair dismissal claims.  Other types of claims, most notably unlawful discrimination, which can be incorporated into a Compromise Agreement, will not be covered under the "compensated no fault dismissal".  As the government has already committed to radically simplifying the use of Compromise Agreements (possibly including the issuing of a "standard" agreement and guidance which we are sure many employers will welcome) it is questionable whether "compensated no fault dismissals" will offer any real advantages to small employers.  Any potential advantages  are likely to be outweighed by the increased legal wrangling which is likely to ensue, not least arguments over the number of "employees" a company has.  It could be the case that any such provision increases the Tribunal burden rather than reducing it.

The link to read the proposals and submit views is BIS, Call for evidence: Dealing with dismissal and “compensated no-fault dismissal” for micro businesses, March 2012 l

Tuesday, 31 January 2012

A Compromising Situation

The Government has announced its intention to consult on the existing use of Compromise Agreements in the workplace, and to consider whether the law governing their use by employers should be simplified.  Here is a brief look at the law as it stands, and the opportunities and pitfalls a Compromise Agreement can present.

A Compromise Agreement can offer a means of bringing an employment relationship to an end without recourse to protracted disciplinary, grievance or capability proceedings, whilst protecting the employer from potential litigation.  Such agreements are often seen as a “way out” of a difficult situation for both employer and employee.

So what is a Compromise Agreement?
It is a legally-binding agreement between an employer and employee which usually provides for, or follows, the termination of employment (though it can be used in other circumstances).  In most cases the employer agrees to make a payment in exchange for the employee’s agreement to waive their rights to bring certain legal claims. The agreement must comply, however, with precise legal requirements regarding its formation.  There are also some claims which cannot be waived by a Compromise Agreement, including:
-          Personal injury claims which have not yet arisen
-          Claims in relation to accrued pension rights (except in certain, very limited, circumstances)
-          Claims for failure to inform and consult representatives on collective redundancies
-          Claims for failure to inform and consult or to pay compensation equivalent to a protective award under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE).
-          The right to statutory maternity, paternity or adoption pay

In addition there remains uncertainty over whether a Compromise Agreement can be used to waive future claims which have not yet arisen.  Whilst this is definitely not possible in relation to personal injury claims, various legal judgements have suggested that it might be for other types of claim.

What are the current statutory requirements for a valid Compromise Agreement? 
1.      The agreement must be in writing
2.      It must relate to a “particular complaint” or “particular proceedings”.
3.      The employee must have received legal advice from a relevant independent adviser on the terms and effect of the proposed agreement and its effect on the employee’s ability to pursue any rights before an employment tribunal
4.      The independent adviser must have a current contract of insurance or professional indemnity, covering the risk of a claim by the employee in respect of loss arising in consequence of the advice.
5.      The agreement must identify the adviser
6.      The agreement must state that the conditions regulating compromise agreements have been satisfied.

What is meant by “particular complaint” or “particular proceedings”?
It means that a “catch-all” waiver, often used in standard termination agreements, will not be enforceable.  The agreement must specify the individual claims which it is intended to settle, eg, unfair dismissal, disability discrimination.

Who qualifies as an “independent legal adviser”?
Either a
1.      Qualified lawyer
2.      Officer,  employee or member of an independent trade union who has been certified by the union as competent to give advice and as authorised to do so on its behalf
3.      Representative at an advice centre (employee or volunteer) who has been certified as competent to give advice and as authorised to do so on its behalf, provided the employee has not paid for the advice.
4.      Fellow of the Institute of Legal Executives employed by a solicitor’s practice.

What is the extent of the legal advice which must be given?
The adviser must advise the employee on the terms and effect of the Compromise Agreement, in particular its effect on their ability to bring an employment tribunal claim under the relevant legislation.  The adviser is not required to take a view on whether the settlement on offer is good, or to advise the employee on the potential merits of an employment tribunal claim, but in practice many will do so.

What are the pros and cons of using a Compromise Agreement?

The potential benefits are:
·         They offer a “clean break” for both employer and employee
·         They offer a degree of certainty to the employer in relation to potential litigation
·         They can be drafted and agreed relatively quickly

But there are potential pitfalls.....
·         If badly drafted they may not protect the employer against future litigation
·         If used inappropriately, their suggestion at the employer’s behest can leave the employer exposed to claims of constructive unfair dismissal and unlawful discrimination.  Although conversations surrounding the possibility of a compromise agreement will usually be labelled by the employer as “without prejudice,” they may turn out not to be so where they have not been used as a means of resolving a genuine existing dispute, ie, where the employee has been “ambushed”.
·         The requirement that the employee takes legal advice can open up the possibility of claims which the employee might not otherwise have considered, ie the “can of worms” scenario.

It remains to be seen what will come of the government’s intended consultation in this area.  Until then, employers would be wise to consult their legal or HR advisers before considering the use of a Compromise Agreement.

Please note that the above should not be construed as legal advice, and the writer bears no liability for any loss arising from actions taken in consequence of reading this article.