How do I dismiss a difficult employee and avoid a tribunal claim?

Often employers are faced with situations where an employee is being disruptive to the extent that the employment relationship has broken down. Or there are performance issues and the business doesn’t have the luxury to “carry” the employee whilst going through a formal process. Understandably, a fast and effective solution is needed without the worry of receiving a claim.

Thankfully there is a mechanism available to explore the terms upon which an employee exits the business and ensures the company is protected from any claims at the same time. It can be a preferred option to avoid longwinded processes (such as capability or redundancy) and generally gives a quick resolution.

Settlement agreements (previously known as compromise agreements) are a legally binding contract that is entered into by the employer and employee, in order to terminate the employment relationship. In exchange for a termination payment (often referred to as a severance payment), the employee agrees to waive all employment rights they have in respect of bringing any claims against the employer, for example unfair dismissal or discrimination. This is therefore a very useful process for employers when they feel the employment relationship needs to end – and fast.

There are some important points to note:

1. Discussions regarding a settlement agreement need to be “off the record” (without prejudice or covered under Section 111A employment Rights Act 1996) and handled correctly.
2. The settlement agreement must be in writing and must relate to the particular dispute that exists.
3. The agreement must state that its terms comply with the relevant statutory provisions and make reference to which provisions these are.
4. There must be some consideration made to the employee in exchange for them waiving their employment rights. There are some claims that cannot be settled by a settlement agreement and therefore it is imperative you take advice to ensure this route is the correct approach.
5. The employee must receive independent legal advice on the terms and effect of the agreement. It is common practice for the employer to contribute towards this cost or pay it in full.
6. The adviser should be identified in the agreement and have relevant insurance in respect of loss arising as a result of the advice.
7. Tax indemnity, confidentiality and non-derogatory clauses are key provisions to include.
8. Restrictive covenants (post-termination restrictions such as non-complete) can only be reinforced with additional consideration.

“Off the record” conversations

You may have heard of the phrases “protected conversations” or “without prejudice discussions” but what do they actually mean, and why is it important when exploring a settlement?

Where there is a dispute between the parties, interactions (both written and verbal) can be made on a without prejudice basis, in an attempt to resolve matters without undermining a party’s position. The idea is to openly explore settlement options without admitting any fault or waiving any rights, and to also prevent the communications being admitted to a tribunal or court as evidence, if proposed settlement talks break down. Such evidence is referred to as “privileged.”

Being clear from the very outset that settlement is being offered on a without prejudice basis, prevents information that is relayed, being used against a party. Essentially, what is discussed is intended to be “off the record” and therefore confidential, which needs to be the case from the very start.

Historically, without prejudice conversations were only protected if there was a prior dispute. This led to problems when there appeared to be a genuine reason to explore settlement but where one party was not necessarily aware this was the case. It also resulted in more litigation which may have been avoided if there was a facility to explore settlement without there being a prior dispute.

Section 111A of the Employment Rights Act 1996 was therefore introduced to allow greater flexibility where a party wished to explore the ending of the employment relationship even where no dispute existed. Examples could include letting someone go due to performance issues that have not yet been discussed or offering an enhanced redundancy payment without the need for a long unpleasant process to be followed.

Section 111A is further supported by the ACAS Code in respect of pre-termination negotiations (often referred to as “protected conversations”) and offers useful guidance on the implications of section 111A, to employees, employers, and representatives. Whist not mandatory, the Code will be taken into consideration by the Employment Tribunal in any subsequent unfair dismissal claim.

It is important to note that there are limits to section 111A, and it does not apply to claims for breach of contract, discrimination, and automatic unfair dismissal. It can also not be relied upon where there is inappropriate conduct such as being threatened with dismissal if an offer is not accepted.

Advice should always be sought on the correct terminology to use and when to use it.

A real life example

The case of Mr P James v Huisman International (UK) Ltd: 3307490/2018 (https://www.gov.uk/employment-tribunal-decisions) demonstrates how easy it is to get it wrong and how not being clear that discussions are on a without prejudice basis, can result in a costly outcome.

In this case, relations between the Claimant and his employer broke down in the sense that a new person was recruited to take over the Claimant’s role. Unexpectedly, the Claimant was called to a meeting with the MD “for a chat” and immediately told “this was not going to be a good conversation” and that his services were no longer needed. A piece of paper was handed to the Claimant setting out a settlement offer. The letter included the term “without prejudice” and the Claimant was told to get advice.

The Claimant believed he was dismissed in this meeting and pursued a claim for unfair dismissal. The Employment Tribunal held that the Claimant had in fact been dismissed and the content of the meeting was not privileged because the MD had not made it clear at the outset that he was speaking on a without prejudice basis. Therefore, what was discussed in that meeting, was admissible in court.

The Employment Tribunal found the Claimant’s dismissal to be both procedurally and substantively unfair and at a subsequent remedy hearing a compensation payment of £30k was agreed.

Help from Hopkins

At Hopkins we can draft the terms of settlement agreement for you to ensure your company is protected, not only from claims but from reputational damage following the exit of a troublesome employee.

Whilst there are some standard provisions that would be included in all agreements, there is ‘no one size fits all’ approach and it is important that we tailor the agreement to the situation. Senior employees may have access to sensitive and confidential information that other more junior employees do not. A standard clause is not going to be enough, and it is our job to ensure the terms are necessary, fair, and enforceable. The agreement will have the appropriate level of protection that you need in your situation.

Get in touch today.

Contact us our Employment Law Team today on 01623468468 or 01159105555.

We are here to help.