NEGOTIATING SETTLEMENT

How should the negotiation be approached?

It is useful to think about the nature of negotiations that will hopefully lead to a settlement agreement. The purpose is to get to an end point that both the employer and the employee agree on. This means there will need to be some compromise.

Typically, the employer will want to reach a conclusion that involves paying as little as possible. The employee will want to reach a conclusion that involves getting as much money as possible. The two end points are not the same.

An employee will be genuinely concerned about the loss of income that will result from the termination of their employment. They are likely to think about the length of time it could take to get a new job, and they will want the money from the settlement agreement to cover that time.

Offering out placement assistance to an employee is a good way to support them getting alternative employment.

Things to think about.

There is an existing relationship with your employee. It might be fractured at this time, but the employer and the employee know each other well enough and that means that certain preconceptions and other ‘baggage’ might be brought into the negotiation. The chosen negotiator needs to be mindful of this so not let it cloud their judgment in determining an appropriate outcome.

Ideally negotiations should be carried out face to face. Reading the other party’s emotional state is always easier in person.

Either party can walk away if it's simply not possible to reach an agreement.

If the employer has decided that the employment needs to be brought to an end and there's no other option, this does add pressure to reach a conclusion. The negotiator must not be rushed into reaching an agreement unless it is ideal.

Steps to effective negotiation.

Time should be devoted to preparation.

Have information about this particular employee to hand. How long has the employee worked for the organisation? What other roles has the employee had? What does the employee earn? Does the employee earn additional amounts in commission and bonus, or do they receive other payments? What skills and qualifications does the employee have which will impact the ability of the employee to get alternative employment? Answers to these questions are useful when considering the employees likely reaction to a proposed settlement.

Any information the employer has collected, and which tends to support its reasons for needing to end the employment should be factually correct and the employers response to the information should be reasonable. At this stage information is required so that both parties can consider it and discuss the way forward.

Consider carefully whether to present any allegations due to the risk of derailing negotiations and the settlement agreement being proposed.

Decide who's going to lead the negotiation. If there's going to be more than one person, then consider offering the employee the opportunity to be accompanied. You will not want your meeting to look heavy handed.

After the initial exchange of information outline the initial terms of the settlement agreement. The negotiator needs to know the full range of terms that they can offer the employee and then agree a starting point.

Consider how any issues will be put to the employee. Employees are likely to be upset when they're told that they're not doing a good enough job particularly if it will lead to their employment being terminated. Strike a balance between being brutally clear so that the employee understands that this is the end of their employment and being so destructive that the employee is devastated.

After exchanging information about the current situation at work ask questions when presenting issues to the employee. It can be useful to ask the employee to confirm the issues as they have been presented. If the employee is not able to understand the issues the way that the employer understands them this suggests that the presentation of the issues has not been sufficiently clear and needs to be gone over again.

Take frequent breaks to allow both parties to think about what's being said. The employee may wish to make a phone call.

Finding common ground on the offer is easier if the offer is generous. There is more likelihood that the employee will agree to the terms. This also makes the remaining process surprisingly smooth.

It is important to establish areas of common ground. In a settlement agreement there might be a proposal that involves:

·       Payment of monies to the termination date

·       Payment of monies by way of compensation

·       Terms for payment by instalment or over a period of time or on a certain date

·       Terms relating to the employees notice including payment in lieu of notice, garden leave or an agreement that the employee will work part of the notice.

·       An agreed reference

·       An agreement that the settlement will not be discussed with anyone.

·    An agreement on the identity of the external bodies which can be told about the termination and or the reason for it. Employees are usually invested in knowing who will be told about the exit and what will be said about them.

Different employees will have different priorities. For some it's going to be money, the offer of continuing benefits for a period beyond determination date. Others might want to retain company equipment for example a mobile phone or a laptop. Some employees want to buy out their car or to surrender some payments to their pension.

It is important for the employer to take the time to consider what they know about the employee and what makes them tick before they put an offer on the table.

Consider whether the employee would succeed at tribunal. Pay and accrued but untaken holiday pay will be payable and taxable as an absolute minimum. Any consideration above this needs to look at the different risk areas. The basic award for unfair dismissal follows statutory redundancy calculations (can be calculated at www.gov.uk/calculate-your-redundancy-pay) would be payable as an absolute minimum IF an unfair dismissal finding were made.

 Compensation for ordinary unfair dismissal is linked to loss of earnings flowing from dismissal. Employers paying in lieu of notice should give consideration to the fact that these losses will not begin to flow until the pay in lieu expires. The employer should then think realistically about how long it is likely to take the employee to secure an alternative position and whether there is likely to be disparity between their current pay and their pay in a new job. This gives the employer a ballpark monthly loss figure to work from.

Employers should be sensible but not stingy and leave wriggle room to negotiate. Payment under the settlement agreement is generally tax free up to £30,000 whereas pay in any new job or indeed in the employer's old job is received net. A month's gross pay as an offer of settlement is worth more in the employees’ pocket than if they'd actually worked that month.

The employer should also consider how it might benefit e.g. there will be no need to go through the process of dismissal with the drain on resources that it will entail and no risk of a costly tribunal claim with the ability to move the business forward without delay.

Decide the point at which the employer needs to draw the conversations to an end and make a final offer otherwise settlement agreement discussions can go on indefinitely.

There is a skill in determining when it is appropriate to make a final offer and stating that there is nothing more to negotiate. If the negotiator states that an offer is final the employee refuses to agree to it and then the negotiator goes back with a ‘final final’ offer, then credibility is lost.

It is important to think about the consequences of walking away from the discussions without an agreement.

There is more information on this blog about protected conversations. If there has been a pre-existing dispute and the discussions have been labelled ‘without prejudice’ then assuming the employer has been well behaved the discussions will not be admissible. If the discussion was raised as a protected conversation (no existing dispute) relying on section 111 A of the Employment Rights Act in 1996 then the fact of the discussions and their content will also be inadmissible only in relation to an ordinary unfair dismissal claim, so long as there has been no improper behaviour by the employer .

If the negotiations close, ending the employment without an agreement, strategically the employer could call the employee’s bluff. The employer will face the risk of an unfair dismissal claim but the employee will face loss of income and need to obtain new employment. This may well focus the employee's mind so that a restatement of the offer after employment has ended either on a without prejudice basis or using ACAS may be met with a more positive response.

Before the employee is able to make a claim to the employment tribunal, they will be required with some limited exceptions to engage with ACAS early conciliation. This will offer a further opportunity to settle, and it might be more successful than face to face negotiations. If early conciliation fails and the employee subsequently makes a claim to the employment tribunal ACAS has a statutory duty to try to facilitate settlement of the claim meaning all is not lost if it's not possible to reach an agreement at this stage.

An extract from the work of the author and employment law Barrister Daniel Barnett titled  The Three P’s. Protected conversations, without prejudice and privilege.