Exit strategies: negotiating an employee departure

What is meant by ‘without prejudice’ in an employment context?

Where there is a genuine dispute between an employer and its employee, then it is possible to have a ‘without prejudice’ conversation to try and explore a settlement to avoid the dispute continuing and the parties ending up locked in litigation. The principle is that the parties can freely discuss a potential settlement, without the fact or content of that discussion later being disclosed in any later litigation, if an agreement cannot be reached.

In 2013, the government at the time introduced new legislation allowing for ‘protected conversations’ to take place, which is effectively an extension to the without prejudice rule, ensuring that settlement discussions can take place even when there is no existing dispute. However, employers must tread carefully using ‘protected conversations’ where an employee is alleging discrimination.

In what circumstances might an employer want to have a ‘without prejudice’ conversation?

They are used in a broad range of circumstances, some of which are:

• Where an employee is under-performing and the employer does not want to take them through a formal performance management process.
• Where there is a potential restructure and the employer wants to avoid complicated selection decisions and give at-risk employees the chance to volunteer to go.
• Where the relationship between the employee and their manager or the business has broken down.
• If an employee has high absence (short-term or long-term) and the business cannot wait any longer for the absence levels to improve.

Is there a set process employers should follow?

There is no set process. The ACAS Code of Practice on settlement agreements, which is fairly light on obligations, has some key points as follows:

• Offers to end the employment relationship can be made on a confidential basis.
• Parties should not be pressurised into engaging in settlement discussions.
• A reasonable amount of time should be given to a party to consider a settlement offer; the benchmark being set at 10 days, although, in practice, this is often deliberately overlooked.
• An employee should be given the right to be accompanied to during a protected conversation.

How might a deal be structured?

This is inevitably the question that causes the most focus, as ultimately such discussions centre primarily on the financial structure. The starting point is to consider how long the employee has been with the employer. If less than two years, and there are no discrimination or whistleblowing risks, then it may not even be necessary to do a deal, as the employer could just pay in lieu of notice and the relationship ends, without comeback in terms of claims. In such circumstances, a settlement agreement may not be required.

If the employee has more than two years’ service then they have unfair dismissal protection, so doing a deal is inevitably going to cost more than just their notice monies.

How much an employer should be prepared to pay will involve considering a wide variety of factors including:

• Why does the employer want to end the relationship?
• Is there a potentially fair reason to dismiss if a proper process were to be followed?
• What are the employee’s contractual entitlements, in terms of things such as notice and bonus?
• What is the total value of the employee’s remuneration package?
• How desperate is the employer to get rid of the employee?
• Is there any evidence that the employee was looking to leave anyway?
• Is the employee relatively employable?
• Is the employee likely to be difficult and adversarial?
• Does the employee have restrictive covenants and do they provide adequate protection?
• Does the employee have complex bonus or long-term incentive arrangements?
• Has the employer already found a replacement for the employee?
• Are there non-financial aspects that will be important for either side?

This could be the need for an agreed reference, if the employee has insurances that will kick in if they are made redundant, or the desire to carefully manage internal and external comms in relation to the exit.

Exactly where an employer might pitch their offer, and how high they should be prepared to go, is a difficult balance. It is an area where commercial judgment is key, both by the employer and their lawyer, in order to get the deal over the line.

This article was first published in HR Magazine. For more information about any of the issues covered in this update, or if you are an employer and need employment advice on negotiating an employee exit, please get in touch with Employment Partner Greg Burgess.