Proposals regarding settlement agreements from earlier this year have been fleshed out in a new government paper. Avid readers will recall talk of “protected conversations” – these seem to have died a death for now. The Government’s response to consultation seems to accept that such a concept could add to the administrative burdens on employers and create a new area of contention which could be “a field day for lawyers”. The response instead concentrates on “settlement agreements” to replace compromise agreements. The question is whether this will amount to more than just a change of name.
The paper sets out a proposed model wording for a settlement agreement, which doesn’t differ all that much from the sort of wording seen in compromise agreements in common use. This is not too surprising, given that any wording must be sure to satisfy the requirements of s203 of the Employment Rights Act 1996, which permits contracting out from employment rights in limited circumstances. Moreover, the standard wording sets out a long list of potential claims which could be covered. Many compromise agreements look pretty cumbersome, it is true, but that is for a number of reasons – some excessive caution perhaps, but many issues are often dealt with over and above statutory employment claims. Pensions and personal injury claims are frequently carved out. Benefits in kind and so on are dealt with. Employers want post termination restrictions and confidentiality obligations added or reaffirmed. The tax position needs to be dealt with. The employer wants written confirmation that the necessary legal advice has been given. The model agreement put forward covers some, but not all of these, and extends, with its guidance notes, to 15 pages.
More specifically we now have the answer to the question of contribution to the employee’s legal costs. Clause 10 of the draft settlement agreement provides:
10: Employee’s Legal Costs
The Employer will pay the Employee’s reasonable legal costs incurred in connection with the preparation of this agreement up to a maximum of [£insert figure] plus VAT. Such fees will be payable directly to the Adviser on receipt from the Adviser of an invoice addressed to the Employee and marked payable by the Employer. The Employer agrees to pay these costs within 14 days of receipt of the invoice.
Does it seem familiar? It should because it replicates the equivalent clause which appears in almost all current compromise agreements. The commentary in the consultation points out that it is not obligatory for an employer to contribute to the employee’s legal costs but, as I pointed out last month, it would be reckless not to do so.
One area where the Government may be on to something is the question of the uncertainty of when an employer will be protected by the “without prejudice” rule when putting forward a proposal to end employment on agreed terms. Employees are often happy to go quietly rather than have a disciplinary or performance procedure on their record, and there is sometimes genuine uncertainty about whether a dispute has arisen at the point an offer is first made (see for example BNP Paribas v Mezzotero and related cases). If the Government can work out a clear, fair mechanism to trigger privilege in case where a party (usually the employer) wants to initiate an amicable parting of the ways, that will be a positive step.
Another major proposal is lowering the cap on the compensatory award – the exact level is to be established, but it could be as low as £26,000. Much is made of the big “hike” in the cap from 12,000 to £50,000 in 1999, but strangely no mention is made for the reason given for the increase – which is that the real value of the compensatory award had been eroded by inflation. Given recently publicised figures showing that most awards don’t get anywhere near the current cap of £72.300 (with the average and median awards in the latest employment tribunals statistics being £4560 and £9133 respectively) it may be that only big earners will be hit by this, and it is true that some employees are disappointed when they take advice and discover that they are unlikely to be awarded anything like the maximum award. Nevertheless, it seems a retrograde step to revert to the position where substantial employers with deep pockets can simply pay people to go away with their personal possessions in a black bin bag.