Employment Law: An Employer Can Terminate An Employee’s Contract Of Employment At Any Time…

Both employers and employees will from time to time experience concerns and difficulties with one another. Such disputes are often resolved with an informal discussions between all parties concerned, however sometimes employers may feel the need to use performance management or disciplinary proceedings and an employee may wish to raise a grievance. In these matters, policies and procedures should be adhered to in order to deal with the issues correctly and avoid costly mistakes, HR professionals can help you manage that process. Where a severance of ties becomes the only viable option to effectively resolve the dispute, Settlement Agreements can be used ‘settle’ the matter.

Termination of employee contracts

Firstly, an employer can terminate an employee’s contract of employment at any time

However, this action could open a can of worms and leave employers defending;

  1. Claim for wrongful dismissal (claim for breach of contract for failure to provide any or sufficient notice to end the contract
  2. Discrimination (in the event that termination is based upon a number of discriminatory acts e.g. race, sex, disability age etc.)
  3. Claim for unfair dismissal (in the event that the employee has the jurisdiction to bring such a claim of two years continuous service)

There a number of potentially ‘fair’ reasons for dismissal under Section 98 of the Employment Rights Act 1986 (“ERA”) which may enable the employer to dismiss an employee and avoid a claim for unfair dismissal including;

  • Conduct/misconduct;
  • Capability and qualifications (competency);
  • Redundancy;
  • Breach of a statutory restriction and
  • Some other substantial reason (SOSR)

What is a Settlement Agreement?

Settlement Agreements are the most commonly used method to terminate an employment contract. They identify an agreed set of terms by way of mutual agreement between the parties. Settlement Agreements often provide a coherent approach to terminate an employment contract as amicably as can be expected between the parties concerned.

Usually they provide that the employer will make a payment to the employee of a sum of money to compensate the employee for loss of employment and other payments like notice periods; accrued holiday pay etc. in consideration for the employee giving up all their employment rights.

Considering Settlement Agreements? Consider this…

  • Settlement discussions do not form part of the disciplinary or performance management process.
  • They are often confidential – if an agreement is not reached between the parties, those negotiations may not be used as evidence in claims before an employment tribunal or other Court proceedings, but take heed, this isn’t as straight forward as it seems.
  • ‘Out of the Blue’ where an employer has not previously mentioned an issue with an employee, they should consider whether an offer of settlement would appear ‘out of the blue’, how this might affect the employee’s reaction to the offer and the knock on affect if an agreement cannot be met.
  • Employees should be allowed a minimum period of 10 calendar days to consider the proposed form of written terms of a settlement agreement and seek independent advice.

The confidentiality point explained… The rules relating to the disclosure of settlement negotiations as evidence in legal proceedings is regulated by two provisions:

  1. Without prejudice – a common law principle which prevents statements, which are made in a genuine attempt to settle an existing dispute, from being put before a Tribunal or Court as evidence in any legal proceedings. It can apply to any kind of claim i.e. unfair dismissal, breach of contract, discrimination, wages claims etc. In order to be protected there must be an existing dispute between the parties and no impropriety in the conduct of the parties during those discussions.
  2. Section 111A of the ERA which provides more certainty as to when settlement offers/discussions may not be used as evidence. It only applies in unfair dismissal claims (an exception is that it does not apply to automatic unfair dismissal claims) and it does not require there to be an existing dispute between the parties in order for protection to be obtained. Section 111A does not apply if there has been some improper behaviour, examples of which include:
  • All forms of harassment, bullying and intimidation, physical assault or threat of physical assault.
  • All forms of victimisation.
  • Any kind of discrimination.
  • Putting undue pressure on a party for example not giving a reasonable period of time to consider an offer. As a general rule a minimum period of 10 calendar days should be allowed to consider the proposed form of written terms of a settlement agreement and to receiving independent advice, unless the parties agree otherwise.
  • A threat by employer before any form of disciplinary process has begun that if the employee rejects the settlement proposal then the employee will be dismissed.
  • Where a Tribunal finds that there has been an improper behaviour, any offer of a settlement or discussions relating to it will only be inadmissible if, and in so far as, the Tribunal considers it just to exclude that material.

How Else can help

Because of the sensitivity in handling employment related matters and the complex legal issues concerning ‘without prejudice discussions’ and Section 111A of the ERA, it is important that an employer and/or employee tread carefully.

Else have the employment expertise to guide you through a Settlement Agreement procedure. Our experts can help you deal with the process to avoid making unfortunate and potentially costly mistakes. For more information regarding Settlement Agreements please contact stephen.stewart@elselaw.co.uk or call 01283 526 200.


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