New rules should ease employers’ dismissal costs

Picture: PA
Picture: PA
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New legislation designed to protect employers when making settlement agreements should change the way that companies interact with employees when having difficult discussions with them – but it may also have some negative side-effects.

Since the end of July, in certain circumstances, an employer can now ask an employee to leave under a settlement agreement, without the employee being able to use anything said in the conversation to support a claim for unfair dismissal.

And while I and many others in employment law welcome these changes, there may be those unwelcome side-effects to look out for.

The changes which will be written into the Employment Rights Act 1996 mean employers will be able to have pre-termination discussions which will not be admissible in evidence before an employment tribunal unless there is improper behaviour or undue pressure involved in the discussions.

On the same date, the statutory maximum that a tribunal can award in compensation for an unfair dismissal will reduce from the current cap of £74,200 to the lesser of £74,200 or the claimant’s annual salary. In addition, unless they are exempt, claimants will also have to start paying fees to lodge a claim in the tribunal and again before a hearing.


Taken together, these are the kind of employer-friendly changes that are being introduced by the coalition government. In most situations, they should enable employers who want to avoid tribunal claims to reach a commercially acceptable mutual agreement for less than has previously been the case.

The changes have been described as a bullies’ charter by their opponents, and while they will be welcomed by most employers, it is likely that there will initially be more litigation rather than less as employment lawyers, the unions and the tribunal iron out some uncertainties contained in the drafting.

However, employers should continue to be cautious when discussing termination of employment as Protected Conversations only apply in ordinary unfair dismissal claims, and do not apply to automatic unfair dismissals, discrimination or other employment law claims.

Employers will be required to give the employee ten working days to consider any offers made for the termination of their employment, and failure to do so would be regarded as undue pressure, when the discussion would lose its protection and become admissible in evidence in any employment tribunal claim. In addition, for any agreement to be binding, it will still need to be recorded in writing and meet certain statutory requirements.


Employers should still tread carefully when considering whether to rely on the law to ensure that they actually get the protection that the law provides. Any offer will need to be worded in an appropriate way and the employer will need to be careful not to put pressure on the employee to accept it or suggest that in the event it is rejected, dismissal is unavoidable.

As the new law does not apply to automatically unfair dismissal or discrimination, we may see an increase in those types of claims being brought. We already see a number of claims being brought with little or no factual or legal merit that allege that the dismissal is automatically unfair because, for example, the employee had blown the whistle on alleged illegal activity within the work place.

The new legislation does not apply to cases where the claimant brings such a complaint. There is no need for the complaint to be upheld or even have any legal merit for the new law to not apply, therefore claimants may allege that they have been automatically unfairly dismissed just to enable them to rely on what would have been a Protected Conversation. Automatically unfair dismissals tend to be more complicated and therefore expensive to defend.

In addition, the tribunal also frequently deals with constructive unfair dismissal claims and breach of contract claims where in addition to an unfair dismissal claim, the employee is claiming compensation based on their notice pay.

We may end up in the absurd situation where a tribunal is allowed to hear evidence in respect of a breach of contract claim and have it form part of their decision, whilst having to ignore it when considering the unfair dismissal claim. How the government can expect the tribunal to forget evidence that it has heard is beyond me.

• Ben Doherty is head of employment at law firm Lindsays:

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