The hidden dangers of the ‘golden goodbye’

Q How safe is it to offer compromise agreements?

A It is commonly held that giving a worker genuine options when suggesting an exit package (not just resignation or dismissal), cuts the risk of constituting constructive dismissal.

The theory is they are not forced to resign, but are given a choice between improving their performance or, if they are not prepared to make that effort (or feel they are not up to the job), that they will favourably consider an exit package.

However, be warned: following a recent Employment Appeal Tribunal (EAT) decision, employers may now be on dangerous ground if they offer an exit package in this way.

Q What is the significance of Billington v Michael Hunter & Sons Limited?

A The facts of this case are that the employee, Mrs Billington, had been called to a disciplinary meeting, to discuss a number of written complaints from customers, and was subsequently given a written warning.

At a further meeting held to discuss new allegations of unsatisfactory performance, Billington’s line manager said that if there were further customer complaints, she “would very likely be dismissed”. She was told that “should she decide that the job was beyond her capabilities”, she could resign on “favourable terms” (presumably via a compromise agreement). But her line manager added that he hoped her performance would improve, making this unnecessary.

The EAT reviewed whether the Liverpool Employment Tribunal had made an error in law by finding there was no fundamental breach of the implied term of trust and confidence during the final meeting with Billington. The EAT considered:

– Did the employer conduct itself in a matter calculated and likely to destroy or seriously damage the relationship of confidence and trust between the parties?

If not, the case ends. If the answer is yes, a second issue arises:

– Did the employer do so without reasonable and proper cause?

The EAT answered the first question in the affirmative. It took into account the invitation to resign against the background of the issued written warning, which it considered a clear “vote of no confidence”.

The case was remitted to a fresh employment tribunal to consider the second stage of the above test.

Q What is the risk now for employers when offering compromise agreements?

A Offering ‘exit packages’ to staff instead of following formal procedure inevitably carries a certain amount of risk.

Following this decision, it seems that even where a worker is offered an exit package as an alternative to going through a formal procedure (where dismissal is by no means certain at the end of it), there is a real risk that if the package is refused and the employee resigns, they may still succeed with a claim for constructive unfair dismissal.

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