The Government has issued a Consultation on matters concerning the end of the employment relationship. The Consultation seeks views on proposals for the guidance needed to support the new system of "protected conversations" and settlement agreements. It also seeks views on proposals to vary the maximum compensatory award for unfair dismissal. The Consultation closes on 23 November 2012 and the Government's Response is expected in Spring 2013.
Protected conversations and settlement agreements
The Consultation seeks views on the nature of the guidance needed to support the use of "protected conversations" and settlement agreements. The new system of protected conversations is set out in the Enterprise and Regulatory Reform Bill, which is currently making its way through Parliament. A number of different measures have been proposed.
(i) Introduction of a new statutory ACAS Code of Practice
The Consultation confirms that the system of protected conversations will be supported by a new ACAS Statutory Code of Practice which is designed to give employers “certainty and confidence” about how to engage in these sorts of discussions. The Code will set out the broad principles underpinning the protected conversation framework and subsequent settlements and will clarify matters including:
either party may propose settlement and offers are to be in writing;
there is no need to have followed any procedure prior to making an offer;
if settlement discussions are handled the wrong way, there is a risk of constructive dismissal;
individuals are to be given a clear, reasonable period of time to respond to an offer;
examples are to be given of what constitutes “improper behaviour”; and
no undue pressure should be put on a party to accept an offer.
There will be a consultation on the draft Code of Practice in due course.
(ii) Introduction of template letters and a model settlement
The Consultation includes template settlement offer letters and a settlement agreement, which will, in due course, be annexed to the new statutory ACAS Code of Practice. The Government's view is that annexing the templates to the statutory Code itself (rather than to non-legislative guidance) will give employers certainty that if they follow the principles enshrined in the Code and use the template documents, then they should have protection from unfair dismissal claims when making an offer of settlement.
The three template settlement offer letters deal with severance on the grounds of: (i) unsatisfactory performance; (ii) conduct; and (iii) unsatisfactory attendance. It is confirmed that employers will be able to tailor the letters. The template settlement agreement broadly mirrors the structure of a standard compromise agreement. Notably, the Government decided not to introduce a "blanket waiver" of claims in the agreement on the grounds that this would substantially increase the guidance an individual would need. It will also still be necessary for the employee to have the agreement signed by an independent legal advisor. The use of the template agreement is voluntary – employers can still use their own settlement agreement if they prefer.
(iii) Consideration of whether any other information or guidance should be introduced
The Government is also seeking views on what other useful guidance can be offered, including whether to introduce a "Guideline Tariff" setting out what a fair and appropriate settlement figure should be. The Guideline Tariff could take the form of a set figure or a formula or simply a list of issues to be considered in deciding a settlement figure. The rationale behind this is to give parties a realistic expectation of the value of the settlement offer. However, the risk is that the figures in any Guideline Tariff come to represent a de facto minimum.
Variation of the compensatory award for unfair dismissal
The Government considers that the current cap on the compensatory award for unfair dismissal of £72,300 may lead to unrealistic perceptions amongst employees and employers about the level of Tribunal awards. The median average unfair dismissal award is less than £5,000 (less than 10% of the upper cap on compensation and less than 20% of the annual median wage of £25,882).
The Government is, therefore, consulting on the following proposals:
whether the 12 months’ remuneration should be the appropriate maximum award; and
whether the overall cap of £72,300 should be varied to between c.£25,882 and c.£77,646.
The Government’s view is that a cap of 12 months’ pay (subject to an overall cap) could lead to more realistic perceptions of the likely level of awards and encourage parties to make better informed choices when resolving employment disputes. It also considers that the new cap would give businesses greater certainty about the potential value of a dispute.
Whilst the forthcoming system of "protected conversations" is welcome from an employer's point of view, the protection offered is very limited in that it only applies in respect of ordinary unfair dismissal claims. Given the very limited scope of the protection, it seems a little incongruous that the Government is devoting so much time and effort to developing the appropriate framework for the system. The aim was to free employers from red-tape and make it easier for employers to part company with employees in certain circumstances. Yet, in future, employers will have to ensure they abide by a new Code of Practice and be mindful of the template documents promoted by the Government.