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UK – Dismissals made easy under new government plans?

12 June 2012

Business groups have backed government plans to introduce “no fault dismissals”, giving employers more legal protection when laying off workers. Under this legislation, employers can offer staff a compensation payment when leaving their jobs which will then protect companies against dismissals being used in court.

The plans on “settlement agreements” have been announced by Business Secretary Vince Cable in Parliament. It seeks to add a new clause to the Enterprise and Regulatory Reform Bill which will make it easier for underperforming staff to leave in return for a payment.

But the coalition government is split over the proposal, which was originally drawn up by Adrian Beecroft, a private equity executive, sparking a row amongst politicians, which eventually led to the compromise on settlement agreements.

Business groups have welcomed the plans with the British Chambers of Commerce saying that it will simplify the “process of ending an employment relationship in a way which is acceptable to both sides.”

But Adam Hartley, partner at DLA Piper said that “the new proposals raise uncertainties around how the existing compromise agreement will work and there appear to two key issues. Currently, compromise agreements require the employee to receive independent legal advice in order for it to be binding.  It is not clear whether the proposed settlement agreements will have this condition.

“Second, and perhaps the most important issue, it is not clear whether settlement agreements will be able to extinguish discrimination claims or whether it is simply proposed that settlement discussions will potentially be admissible in tribunal proceedings concerning discrimination claims.”

He said that employers are left in a “very uncertain position” as they could potentially pay an employee under a settlement agreement “to extinguish any unfair dismissal claim but still being wide open to claims of discrimination which could still be brought in a tribunal.”

The Chartered Institute of Personnel and Development (CIPD) meanwhile said that settlement agreements should be used “to encourage better and more consistent performance management by employers, not as a substitute for it.” It warned that it could create “far more disputes and red-tape than the proposal is intended to cut through.”

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