Termination of Employment and Settlement Agreements

An employee with enough continuous employment has the right not to be unfairly dismissed, which means they can only be dismissed for one of a number of specific fair reasons and the dismissal must be fair in the circumstances.

The specific fair reasons for dismissal are (1) statutory illegality, (2) redundancy, (3) conduct, (4) capability and (5) some other substantial reason. For someone employed on or after 6 April 2012, they must have worked for the same employer for at least two years before they have the right not to be unfairly dismissed. Anyone employed before 6 April 2012 only needs to be employed for one year before they have this right.

It is also possible to dismiss an employee for some specific reasons that are automatically unfair. For some, but not all of these reasons, the employee does not need the minimum period of employment mentioned above.

An employee must present a complaint of unfair dismissal to an employment tribunal within the three-month period beginning with the effective date of termination. If successful, the employee can expect to receive a basic award (equivalent to a statutory redundancy payment) and a compensatory award (subject to a cap of £74,200 or, from 29 July 2013, one year’s salary, whichever is the lower), both of which may be subject to a number of deductions depending on the circumstances.

To avoid the risk of an employee pursuing a claim of unfair dismissal following the termination of their employment, you may prefer to agree settlement terms with them instead. Any negotiations can be carried out on a “without prejudice” basis if there is an existing dispute to be resolved. Even where there is no existing dispute, as from 29 July 2013 any settlement discussions are inadmissible in proceedings for ordinary unfair dismissal, except at the employment tribunal’s discretion where there has been improper behaviour.

Once terms are agreed, it is important to set these out in a formal Settlement Agreement, previously known as a ‘Compromise Agreement’. This is the only method by which an employee can validly give up their statutory employment rights. A Settlement Agreement is a written document that contains specific terms and the employee must take legal advice on the terms and effect of the proposed agreement. Normally, therefore, the employer also agrees to pay a contribution towards the employee’s legal costs for this advice.

We can advise you on how to minimise the risk of a claim of unfair dismissal and, where appropriate, prepare valid Settlement Agreements setting out agreed terms. If you would like to discuss this in more detail, please telephone  Albert Bargery on  01296 318500.

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