Handling exit discussions

OVERVIEW

  • This guide looks at how employers can discuss with an employee their exit from the business on a without prejudice or protected discussion basis. We refer to these as ‘exit discussions’.
  • If successful, the mutually agreed exit is normally recorded via a settlement agreement. These agreements benefit both parties because they typically include wording which ensures that neither party will disparage the other or disclose the details of the arrangement (other than to HMRC, for example), provide for an agreed reference and/or leaving announcement and in return the individual waives all claims they might have against the employer regarding their employment and termination.
  • Exit discussions can be instigated by either party, although it is more normally driven by the employer. There is no obligation on either party to agree to have or to continue the discussions.
  • If the exit discussion fails for whatever reason, the employee should continue in employment without suffering any detriment. 

WHY HAVE AN EXIT DISCUSSION?

  • An exit discussion, if conducted properly, affords both employer and employee the opportunity to have a full and frank discussion about the situation and any proposed exit.
  • If the discussion fails, for whatever reason, the employment continues as normal. That may mean, for example, that the individual is put onto a capability procedure which may result in their eventual dismissal on grounds of capability.
  • If successful, the employment will end on a mutually agreed date and on agreed terms which should be set out in a settlement agreement which procures from the employee a waiver of all the employment related claims they have or may have against the business and its employees.
  • It is also possible, albeit infrequent, for the parties to agree basic settlement terms via ACAS using a COT3. A COT3 is a binding contract between the parties whereby the individual.
  • Such settlement agreements will ensure that each party knows what is required of the other, the penalties if they fail to comply with the terms, and typically involve payment of an ex-gratia sum to the individual and a waiver of all employment claims the individual might have against the business and its employees. It may also include an agreed reference or announcement which individuals who are otherwise at significant risk of dismissal on grounds of misconduct or capability (for example) might consider more important.
  • Employers should be aware that the employee (or their adviser) will typically expect them to make a contribution to the individual’s legal fees although this is not a legal requirement. The average rate ranges between £250 - £500 plus VAT but it may be higher on complex matters and/or for senior individuals. 

WHEN CAN/SHOULD YOU HAVE AN EXIT DISCUSSION?

  • Exit discussions may take place at any point during an employee’s employment, and for any employee regardless of position. Typically however they will be of most benefit where a dispute exists between the parties and the employer wishes to exit the individual whilst limiting the risk of any tribunal claim, or where the employer wishes to offer the individual a means of exiting the business without going through a capability, disciplinary or redundancy procedure.
  • Under the protected discussions regime introduced in July 2013, an exit discussion can be used where no dispute exists between the parties. This can be helpful to the parties because prior to that time, the ability to have a ‘without prejudice’ conversation was very limited as it could only be used when there was already a dispute.
  • Provided it is made clear in any meeting that the discussions are on either a without prejudice basis (if there is already a dispute) or they are a protected discussion (where there is no dispute), they could also occur at the end of a normal redundancy consultation or disciplinary meeting.

EXIT PACKAGE: KEY CONSIDERATIONS

  • Hold the meeting in a neutral location where you cannot be seen or overheard, if possible. Decide who will be present to put forward the business’ position and whether the discussion will be on a without prejudice or protected discussion basis (see below).
  • Identify:
    • the rationale for proposing the exit
    • the individual’s contractual entitlements if their employment ends
    • the enhanced package (if any) to be offered
    • whether they need to sign a settlement agreement (which is advisable)
    • the logistical arrangements regarding their exit
    • the timeframe in which the individual can consider their position and take legal advice, and
    • what will happen if the individual refuses the offer
  • Typically employees are incentivised to agree an exit if they are paid compensation for loss of employment. The online guidance from HMRC sets out when payments may be non-taxable or taxable. It is always sensible to take legal and/or tax advice before determining how a payment should be treated for tax purposes. Whilst employers cannot guarantee the taxable nature of payments, they can pay a non-taxable ex-gratia sum if it is compensation for loss of employment. It is worth remembering however that other benefits might be just as motivating as a financial payment such as agreeing a reference or their being released from their post-termination restrictions.
  • Decide whether the proposal is subject to particular conditions, for example that the individual will be a witness for the business in an upcoming tribunal or will perform a special project before their employment ends.
  • If the employee becomes abusive or emotional about the proposal, it is sensible briefly to adjourn the discussion and restart it when the parties are calmer.

‘WITHOUT PREJUDICE' DISCUSSIONS

  • Discussions and correspondence which are made on a ‘without prejudice’ basis are a means by which to resolve an existing dispute between the business and employee.
  • They allow the parties to speak freely in an attempt to reach an agreement in the knowledge that neither can rely on the discussion or correspondence in any future proceedings.
  • They cannot be used to hide behind discriminatory comments or where what is said in a without prejudice meeting is completely different to what is said in a subsequent claim if the parties are unable to agree the employee’s exit from the business under a settlement agreement. 
  • To have a valid discussion on a without prejudice basis, the employer should tell the individual at the very start that they want to speak with them on a without prejudice basis. The employer should explain that this simply means neither party may rely on the discussion in future proceedings and ask the employee to confirm they are willing to speak on this basis. If a note of the discussion is taken, it should be clearly stated that this was on a without prejudice basis, so that it does not need to be disclosed in any future litigation.
  • Any emails or letters should state clearly that they are on a without prejudice basis. Typically that information is put as a header on the letter or email.

PROTECTED CONVERSATIONS

  • A protected conversation allows the parties to discuss an employee’s exit even when no dispute exists between the parties, in the knowledge that neither can rely on the discussions in any future proceedings - subject to what is set out below.
  • The ACAS Code of Practice applies to such discussions. It is not legally binding but will be taken into account if the discussions fail and the individual subsequently brings a claim in the employment tribunal and alleges that the employer tried to use a protected discussion to deal with one of the situations listed below and/or made discriminatory remarks and/or behaved improperly during it.
  • The key points to bear in mind are:
    • These discussions cannot be used to deal with situations involving discrimination, harassment, discriminatory victimisation, whistleblowing, union membership, asserting a statutory right, breach of contract, wrongful dismissal or other ‘automatically unfair’ dismissal situations.
    • If an employment tribunal decide that there has been ‘improper behaviour’ by either party, then they may decide that the details of the conversation can be heard by the tribunal. For example, if the employer tells the individual in no uncertain terms that they will definitely be dismissed if they refuse to agree the exit proposed or the employee threatens to damage the reputation of the employer if they do not agree to their demands.
    • Also, if things are said during the meeting which are discriminatory, then additional compensation may be awarded by the tribunal based on those comments.
    • ACAS recommends that the employee is given 10 calendar days in which to consider the settlement agreement from the time that is received; it is prudent therefore to issue the document at or immediately after the meeting. Many businesses will permit the individual to take paid leave during this time although it is not legally required.
    • There is no statutory obligation formally to invite the individual to this meeting or to give them the right to bring a companion (whether a fellow worker or a trade union representative). ACAS recommends that individuals are permitted however to bring a companion.
  • Employees should not be threatened that their employment will come to an end if they refuse to go in any event. But employers can, for example, explain that if the exit cannot be agreed within the time frame set, they will expect the individual to return to work following which the business will begin a performance improvement plan based on previous discussions with the individual about their work which may result in their employment ending. Employers should be careful about the tone and way this is expressed however.