Quite often negotiations over settlement of a dispute between employer and employee through use of a Compromise Agreement can be carried on in a world of their own, “without prejudice”, and without attention being given to the actual employment status of the employee in the interim. Typically, after initial hostile exchanges over some problem, a “without prejudice” discussion occurs and a fair degree of accord on the principal terms of a negotiated exit is reached; it is agreed that the employee will go off on garden leave while the full terms of a Compromise Agreement (“CA”) are worked out. Often nothing is put in writing “on the record”. So there is no dismissal, there is nothing formal saying that the employee is not at work with the employer’s blessing nor anything about pay continuing.
If the deal is completed there is no real problem for either side. But there are dangers lurking if the deal founders or merely goes through a sticky patch. For example, the employer may deny that he has agreed for the employee to have fully paid leave of absence. Although in that situation it may well be that if it came to a Tribunal hearing the employer would not be believed it could place the employee under pressure to, perhaps, accept a term in the CA that is causing a problem. For both employer and employee it is therefore desirable that the formal agreement of status pending a settlement is put in writing. If the employer does not do it it the employee should.
An example of how things can go wrong is revealed by a Court of Appeal case, Radecki v Kirklees Metropolitan Borough Council (Kirklees), the Court held that the effective date of termination (EDT) can be the date of an act that demonstrates a clear intention to terminate employment. In that case, stopping the employee's pay while he was suspended was a sufficiently unequivocal statement of such an intention. Despite continuing without prejudice negotiations the employer had unwittingly brought the contract to an end.
Mr Radecki was a teacher. He was suspended with pay. A disciplinary hearing was deferred while a compromise agreement was negotiated. A draft copy of it, headed 'without prejudice' and “subject to contract”, stated that the employment would “terminate by mutual consent on 31 October 2006”. Being “without prejudice” this statement of the end date was meaningless and ineffective. However, although the agreement was not yet finalized, let alone signed, Mr Radecki was removed from the payroll on this date. He must have known something was amiss as he received no pay in November or subsequently but, crucially and unhappily for him, did not do anything about that.
Not altogether surprisingly and with a fair degree of expectation of success Mr Radecki lodged a claim of unfair dismissal at the tribunal on 7 March 2007. The tribunal found that his claim was out of time - the Effective Date of Termination(“EDT”) had been his removal from the payroll on 31 October 2006, some four months earlier. On appeal, the Employment Appeal Tribunal held that removing him from the payroll while he was suspended and negotiating a compromise agreement did not terminate his employment. The EDT was instead the date of the letter of 5 March, clearly stating that the employment relationship had ended.
The Court of Appeal allowed Kirklees’ appeal, stressing that, given the strictly enforced time limits for lodging claims (usually three months from the conduct complained of), it is important that employees can clearly establish their EDT. Although there was no consensual termination of the contract on 31 October as a result of the compromise agreement because it had never matured into a formal agreement the original Employment Tribunal’s finding that Mr Radecki knew he would not be paid from 31 October was sufficient to show that Kirklees had brought the employment to an end for EDT purposes. The claim was therefore lodged out of time.
- It is a good example of what can happen when negotiations over a compromise agreement go wrong. This can lead, amongst other things to a position where there is no clear statement regarding the date of dismissal.
- Stopping an employee's salary can, in certain circumstances, be sufficient to constitute summary dismissal and the date on which payment of salary stops may therefore be the EDT. (However, if Mr Radecki had made a claim within three months of 31st October he might well have proved an unfair dismissal so employers are not recommended to this course. Indeed, I would warn against it as a general rule)
- Although the Court of Appeal's judgment could be clearer, the EDT in cases where that date is not immediately clear (e.g. because of a lack of written record) will normally depend on the actions of the parties and the Employment Tribunal's interpretation of them.
- To be on the safe side, employers should ensure that they communicate the date of dismissal clearly and unequivocally during any compromise agreement negotiations. In any event, employers will want to ensure they follow a fair procedure so they do not by mistake end up unfairly dismissing an employee without a compromise agreement having been agreed.
- Employees should keep the position under constant review during negotiations and make sure that the record of status of employment is recorded formally. If the employer puts nothing in writing the employee should do so and send it to the employer.
