Settlement agreements will create dispute and confusion for both employers and employees, Thompsons has warned in its response to the government’s consultation “Ending the Employment Relationship”.

Thompsons also claims that the government’s stated policy objectives for reducing the unfair dismissal compensation cap are fallacious and will not improve certainty about the amount of award that businesses will pay, nor will they affect the expectations of claimants.

Settlement agreements are discussions which will allow an employer who wants to get rid of an employee to offer them a pay off, but which the employee cannot then use as evidence in any tribunal claim that they subsequently bring.

Thompsons recognises the usefulness of having a conversation of this type (and can see the benefits for capability and conduct dismissals) but believes that the proposals, as they stand, are ill-conceived and will lead to all sorts of unintended consequences.

In particular, the firm is concerned about how they would apply to other aspects of unfair dismissal, such as redundancies when an unscrupulous employer could conceal the fact that a redundancy situation exists and persuade their employees, as part of a settlement agreement, to leave at a fraction of the cost of a redundancy dismissal.

It is also concerned at the proposal in the consultation that employers would not have to follow a procedure prior to offering a settlement. It says that, to prevent a “5 o’clock call to the office, or a conversation in a corridor”, any discussion should be by written invitation and on notice. In addition, the employee should have the right to be accompanied to the meeting.

Although the government states in the consultation that no “undue pressure” should be put on a party to accept the offer of settlement, Thompsons points out that the system that is being suggested is predicated on applying pressure on employees.

It is likely, therefore, to result in satellite litigation to establish the meaning of “undue pressure” causing more confusion and disputes similar to those around the step one grievance procedure under the now scrapped statutory dispute resolution procedures.

Read Thompsons’ response to Ending the Employment Relationship

To access the government consultation paper, visit the Department for Business Innovation & Skills website