It would be an understatement to say that the recent P&O situation is perhaps not the best example of how employees should be fired. What can be gleaned from the available information is that there were no grounds for dismissal due to conduct or performance or any of the other matters which an employer can use to justify a termination. Nor were the employment positions apparently redundant, as we are told that the employees were immediately replaced by agency workers and indeed every ferry needs a crew. So how did P&O think they would be able to terminate without risk of multiple claims for unfair dismissal?
The answer lies in the comments made by some of the employees interviewed on television who said that they could not comment for fear of losing out on a payment from P&O. What does this mean?
In order to end an individual’s employment safely and with minimal risk of an employment tribunal or county court claim, the employer should follow a specific process. This requires the employer to show that there was a genuine, fair and non-discriminatory reason for the dismissal and that the decision to terminate was reasonable in all the circumstances. Accordingly, steps must be taken and records retained, to ensure and prove (in the event of dispute) that the employer was acting correctly. This can take some time and effort. So what if the employer wishes to fast track the decision and bring the employment to a swift end, so avoiding all of these potentially lengthy and drawn out steps?
Sometimes referred to as a ‘voluntary redundancy’, albeit there often is no actual redundancy, the way to do this is to use a settlement agreement. This will invariably contain some inducement to the employee concerned, for example an enhanced or ex gratia payment over and above the employee’s normal statutory entitlements. In return the employee agrees to forego all rights to make a claim. The agreement can also cover other matters such as confidentiality and post-termination restrictions, ultimately providing certainty to both parties. So in the case of P&O the employee’s comments mentioned above imply that a settlement agreement, with both inducement and confidentiality clauses included, was on offer.
The difficulty for any employer taking this approach is that there is no guarantee that the employee will accept the offer. This risk is exacerbated if the employer has already acted unlawfully, for example by making a premature dismissal. This is because the employee’s potential entitlement to compensation if a claim is brought will increase. It is therefore advisable that, wherever possible, settlement agreements should always be entered into prior to the termination of employment.
Also, for any agreement to be effective and enforceable, the employee must obtain independent legal advice on the terms before it is signed. The advisor will normally explain to the employee the nature and possible value of any potential claim the employee may have, so that the employee clearly understand what rights are being given up in exchange for the inducement. This in itself poses a risk for the employer who has acted in a pre-emptive fashion without having first had a proper discussion with the employee. There is never an obligation to accept the terms proposed and the employee may, after having had the advice, decide to make a claim instead.
The terms of the agreement should also ensure that all aspects of the deal are fully captured and all claims excluded. It is therefore essential to use an up to date, professionally drafted, compliant agreement for this purpose.
Termination of employment can involve difficult financial, practical and commercial considerations, the Lawspeed Employment Team can help in determining the best options, risks and where appropriate provide and help negotiate settlement agreements.
In conclusion, properly formulated and correctly signed off ‘voluntary redundancy’ settlement agreements can be a useful and secure option for an employer looking for a quick and clean break. But beware the risks and always get the right advice.
Peter Lappin, senior consultant at the recruitment and employment law specialist Lawspeed.
Lawspeed group corporate clients benefit from immediate up to date advice on staff engagement and related regulation; employment law, settlement terms and tribunal representation; employment status; client, IR35, PAYE, and umbrella contract templates; contract review/negotiation; self-employment and CIS contract templates; trade membership and government representation; audit and accreditation services and a state of the art digital contract management platform.
