Inviting
an under-performing employee to resign with a favourable compensation package
may be seen as a quick and effective way of agreeing a settlement, but there
are pitfalls to this approach, as Gabrielle McGregor explains
Dissatisfaction
with an employee’s performance may be due to poor behaviour on the part of the
employee, or it may be that the employer feels that the employee is simply no
longer up to the job. Where the employer anticipates that disciplinary or
capability proceedings are likely to end in dismissal, they may choose to speed
up the process by offering the employee a chance to tender their notice and
leave with a favourable compensation package.
If
this invitation is accepted and the employee signs a compromise agreement, then
it can be a quick and effective way of reaching a settlement. It may, however,
swing the other way if the employee believes that they are doing a good job. An
affronted employee taken by surprise by an invitation to resign may flatly
refuse. If the offer is not accepted and the employee consequently resigns, the
employer may find themselves facing a claim for constructive unfair dismissal.
To
demonstrate constructive dismissal, an employee must show that the employer
committed a fundamental breach of contract that entitled them to terminate the
employment relationship. If they can persuade a tribunal of this, they must
also show that the employer’s treatment of them was unfair. Two recent cases at
the Employment Appeal Tribunal (EAT) deal with the issues in point.
In
the case of Billington v Michael Hunter and Sons Ltd, Ms Billington was
employed as a sales assistant. Her employers were concerned about her
unsatisfactory performance. They had already issued her with a written warning,
so they arranged a meeting to discuss her position. She was advised that if her
performance continued to be unsatisfactory, then she would very likely be
dismissed. She was also told that if she felt the job was beyond her
capabilities, she could resign on ‘favourable terms’. Ms Billington resigned
from her post. She then lodged an application with the employment tribunal,
claiming unfair constructive dismissal.
In
Billington, the EAT decided that the invitation to resign on favourable terms
clearly amounted to a ‘vote of no confidence’, and that it was sufficiently
serious to found a claim of constructive dismissal. This case demonstrates that
there are significant risks involved for employers who offer settlement
packages to employees as an alternative to following disciplinary or capability
procedures.
Employers
have until now sought to protect their position by stating that discussions
regarding termination of employment are ‘without prejudice’. It is generally
thought that if a discussion is ‘without prejudice’ then things said or done
during that discussion cannot be admitted in evidence in tribunal or court
proceedings. The purpose of the ‘without prejudice’ rule is to encourage
parties to resolve their disputes by negotiating fully and openly without the
risk that anything said or written in the course of the negotiations will be
used against them in court.
The
recent EAT case of BNP Paribas v Mezzotero has rocked the boat with regard to
the ‘without prejudice’ rule, by indicating that employer/employee termination
discussions cannot always be recognised as being on a ‘without prejudice’
basis. Whether a discussion is protected or not will depend on the facts of each
individual case, but ultimately, for the ‘without prejudice’ rule to apply,
there must be a genuine dispute between the parties. If a tribunal/court finds
that there is no genuine dispute between parties, then the content of
discussions regarding termination of employment may be admissible in
tribunal/court proceedings.
The
consequence of this decision is that employers must be very careful when they
decide to invite employees to resign. The most prudent and cautious approach to
take is to conduct the correct formal procedures in tandem with any ‘without
prejudice’ negotiations regarding termination of employment. If negotiations
fail, the employer can fall back on formal procedures to establish that the
process was fair. Employers should also remain aware that comments during
negotiations might not always be protected by the ‘without prejudice’ rule.
Choose words carefully and seek legal advice if in any doubt.
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Employees
who find themselves in receipt of an invitation to resign should be careful not
to make any hasty decisions. They should keep detailed notes of discussions
that take place regarding their employment prospects, and if any form of
settlement package is offered, take legal advice before accepting or rejecting
it. Be aware that an invitation to resign on favourable terms will usually
include a payment towards legal expenses.
Gabrielle
McGregor is a solicitor from the Aberdeen-based employment law team at Paull
& Williamsons
