6 Common Scenarios for Constructive Dismissal - Settlement Agreement Lawyers - Monaco Solicitors

6 Common Scenarios for Constructive Dismissal

Over the many years that the lawyers at Monaco Solicitors have practised employment law, we have seen it all (well, nearly all!). Virtually every scenario that you can imagine in an office, a factory, a City of London skyscraper has probably happened and we’ve either experienced it ourselves or read about it in the law reports. With that vast body of experience behind us, we can identify at an early stage when an employment relationship is headed for the rocks, and when a settlement agreement is the most likely outcome.

The aim of this article is to identify the common scenarios which will lead to the circumstances whereby a negotiation is both likely, and likely to be fruitful. In our article ‘An Employee’s Right to Sue – An Index of Claims That Can Be Made At An Employment Tribunal’, we look in more detail at types of legal claims that may arise from these common scenarios and therefore can be used as bargaining chips, whereas this chapter is intended to be a guide to all employees facing problems with their employment so that they are able to identify when their employer has taken a decision, or is likely to take a decision, that their future is not at the company.

Have you worked for your employer for more than 2 years?

Before we turn to the scenarios, there is one fundamental issue that every employee needs to know, and it’s this: if you have less than two years’ continuous employment with your employer, your employer can dismiss you by giving you no more than statutory or contractual notice and there is nothing you can do about it unless you have a claim such as discrimination or a specified claim which does not require two years’ service. Such claims are rare. An employee needs two years’ service in order to claim unfair dismissal, the most common claim that settlement agreements compromise.

What does it mean if you have less than 2 years’ service?

This means that for the vast majority of employees, if you have less than two years’ service and are facing any of the scenarios in this chapter, or you have simply been dismissed, there is often very little that you or we can do about it. This isn’t always the case, and we have negotiated very high value settlements for people without two years’ service, but they usually fall into one of three categories:

  1. They have a strong claim against the company for discrimination or something similar;
  2. They are very well paid and the company wants to “do the right thing by them”. This latter scenario usually means that they don’t want to get a reputation in their field for treating highly-paid employees poorly, which will make it difficult for them to attract the best talent in the future.
  3. The employee is employed in a commercially sensitive position and the company wishes them to enter into a settlement agreement in order to sign up to restrictions post-termination, and the company is willing to pay for this. Of course, there will always be other scenarios which, for whatever discrete factual nexus applicable, will mean that a settlement agreement and a severance package complete with ex gratia payment will be achievable; however, based on our experience, if an employee does not have two years’ service and fall into one of the above three categories, the chances of achieving a settlement are low.

That said, and bearing the two years’ service factor in mind, we can examine the most common scenarios which lead to a negotiation and a settlement agreement.

6 Common scenarios leading to negotiation between an employee and an employer

  • Performance
  • Mergers and Aquisitions
  • Role Erosion
  • Mental Health Absense
  • Redundancy
  • A settlement agreement is offered

Read on for more detail into these scenarios…

Scenario 1: Performance

The most common scenario which leads to a settlement agreement in our experience is the commencement of performance management procedures for an employee (such as a Performance Improvement Plan, or ‘PIP’) . It is almost certainly the case that if an employer in conjunction with its HR department has sufficient concerns about an employee’s performance to the extent that it is willing to engage that employee in formal procedures, then it wishes the employee would leave, one way or another. HR departments do not take the commencement of performance management procedures lightly: they take up a lot of management time and HR resources and are often undertaken in bad temper (what employee likes being told that their employer doesn’t think that they are up to the job?), so you can bet your bottom dollar that the employer feels strongly about the matter and if that’s the case then they are almost certainly looking to move the employee out of the company and replace him or her.

For the employee, being told that they are going to face performance management is often like being punched in the gut. Often, the employee considers that their performance is more than adequate, and often they are correct and their employer has just taken a dislike to them for some reason and sees performance management as a way of letting the employee know they are no longer wanted. Sometimes, the employer may be justified in undertaking performance management, but the employee simply cannot see the employer’s point of view, which is understandable given the employee has worked hard for many years and has given the job all of their effort. That said, if an employee is told that they are going to have to undertake performance management, there is rarely a better opportunity to start negotiations and achieve a settlement agreement.

The first step for the employee is to either accept that the writing is on the wall and therefore it’s time for them to move on with the best possible financial start to a new job, or even a new career; or, alternatively, to stay and fight for their current role. Our advice would be that employees who stay and fight, for the most part, are deluding themselves that they have a future with that particular employer. How many employees subject to performance management survive the process? How many go on to achieve a pay-rise or promotion? How many are happy in their role even if they survive the process? The trust often goes between employer and employee once these matters are raised, and with that goes the future of the relationship. Of course many employees pass performance management procedures, and many go on to remain with the company for months, even years, and if that’s what the employee wants to do then we always encourage them to stand and fight (having explained to them the above caveats), but there is never a better time to bite the bullet, accept that it’s time to move on and start negotiating.

Why is this a good scenario for achieving a settlement agreement?

The reason why this scenario is often the best in which to achieve a settlement is that both parties want a deal. The employer at the very least recognises that there is a problem and wishes to resolve it one way or the other, and the employee recognises it may be time to move on rather than face performance management. Therefore, you have the basis for an agreement: two willing parties.

It is increasingly common for an HR department to actually invite the employee into a meeting to commence performance management procedures and then have a “without prejudice” or “protected” conversation1 and offer a settlement agreement before the procedure has actually commenced (read more about Without Prejudice Meetings in our helpful article). HR departments have to be careful about this as if the employee is unaware of any pre-existing issues and no performance process has started, there is a possibility that the offer will not be afforded protection (i.e. the conversation will be “on the record”) and therefore the employee will be in a very strong negotiating position as he can allege the result of any performance management procedure is a forgone conclusion and therefore the dismissal potentially unfair. That said, most get it right and it is perfectly legitimate to offer an employee an “either/or” scenario: take the money and go now with a reference, or face the uncertainty of the procedure.

If you are reading this and have just been told you will face performance management, or have been offered a settlement agreement in the alternative, don’t worry; in fact, look at this as an opportunity. You are in the prime position to negotiate some money, get paid your notice, agree the form of wording for a reference and then go and do something better with your life. No one likes being told that their work is viewed as inadequate, but what’s worse is toiling away hoping for promotion, a pay-rise or even recognition in a company that doesn’t appreciate you and in an environment which is probably doing your mental health no good. Like ripping off a plaster from a hairy leg, it’s better to do it quickly and get over the pain than peel it off and feel every hair pulled out one by one, if you pardon the imagery.

Scenario 2: Mergers and Acquisitions

Mergers and acquisitions were famously called “murders and executions” in the 1980s, and there was a reason for that other than the words sounded vaguely similar to bankers in the haze after a four-hour liquid lunch: the results are not pretty. For our purposes, this means that jobs are lost, lines of reporting are changed, promotion prospects are squashed and redundancies imminent. So, if you are an employee facing murder or execution and you understand that the consequences are likely to affect you negatively, you may want to think about starting the negotiation ball rolling and bargain your way out of your job before the axe falls on your career.

Employees facing the consequences of mergers and acquisitions generally fall into one of three categories:

  1. They are employed by the company which is taking over another.
  2. They are employed by a company that is merging with another to create a partnership of equals or other symbiotic relationship.
  3. They are employed by a company which is being taken over by a larger or more powerful concern. Employees in category 1 are usually going to be fine, unless their employer hates them and sees the situational flux as an opportunity to oust them, in which case then it’s a good time to start negotiating a settlement agreement for much the same reasons as we discussed in the performance management paragraphs above. Employees in category 2 are vulnerable to new economies of scale and role-overlap, but this usually takes between six months and a year to begin to make itself known and therefore they are better off remaining in post until the situation looks like it may lead to redundancies. It is employees in category 3 who are the most vulnerable. It is they who are now at the mercy of a larger business, of managers who do not know them, have no relationship with them and are likely to prefer their own staff over them when push comes to shove (as in “pushed and shoved out of employment”). Sometimes a larger company acquires another because it sees a model of efficiency and simply wants the business to continue running and expand naturally. This is rare given one company has to buy the shares of another (at an inflated rate if they are a plc given a takeover always pushes up share prices) or make a global offer for 100% of the shares and assets (as is usually the case in a private limited company). This will cost a lot of money and in order to realise an investment sooner the purchaser will usually try and make efficiency savings (i.e. job cuts, pay cuts, bonus cuts, streamlined structures, fewer promotions, not replacing staff who are leaving, etc). This almost always leads to disaster and a terrible working environment, so if you are facing this scenario, believe your job is going to be affected and see an opportunity to start negotiations, then this is an opportune time to raise the prospect of leaving.

What do we mean by opportune time?

Well, it could mean that some of your role is being given to someone else without you having been consulted. It could mean that your clients (which you have had for years) have suddenly been given to another employee. You could find that decisions that you usually take are being taken by someone else. These things almost always happen following a merger or acquisition, and taken together or on their own these instances may amount to constructive dismissal and/or a breach of the TUPE regulations (see our article). If this has happened then it’s time to raise a formal grievance setting out these complaints openly in writing, while also sending a “without prejudice” or “protected” letter offering to leave employment under a settlement agreement in return for your notice and an ex gratia payment.

Scenario 3: Role Erosion

Role erosion is an old phrase that we used to use in the 1990s to describe the process by which an employer gently eases out an employee with all the grace of a tick being removed from a dog’s ear. The employee is blissfully engaged in the role they have held for years (such as, for example, hanging onto the fur of assorted beasts and gently burrowing into their flesh before sucking out their blood over an extensive period – we may be taking the metaphor a little far here), when the employer suddenly takes against them for whatever reason and rather than tell the what the problem is, or simply explain that it’s no longer working out, the employer instead, usually through cowardice, begins to gently remove the employee without him even knowing about it until, one day, the employee cottons on to what’s occurring, by which time it’s too late and he’s being metaphorically flushed down the toilet, never to emerge.

If the opening to this chapter is a little dramatic, we can reassure you that role erosion is far from it. In fact, it’s quite boring, almost benign at first. An employer attempting to remove an employee in this way moves at a glacial pace, biding its time, employing the “death by a thousand cuts” method and ensuring that the employee cannot point to any one reason as an example of a breach of contract supporting a constructive dismissal claim (see our article on constructive dismissal). The trick is to take away almost all of the employee’s role and responsibilities without him knowing about it and then declare him redundant and pay him off with the pittance which the state allows employers to pay in cases of redundancy (i.e. a statutory redundancy payment – it’s even less than you think, look it up!).

The key for the employee in this scenario is to recognise what is going on at an early stage and make the employer’s life as difficult as possible, to the extent that the employer recognises that if it wants to get rid of the employee, it will happily reach into its metaphorical pocket and pay him off rather than continue down the long and tedious route it had initially envisaged.

What to look out for and how to react

There are two main signs to look out for in regards to the behaviour and action of your employer:

  • The company employing someone to manage you with a suspiciously similar job title and description
  • Your roles and responsibilities are gradually prised away from you and given to either the new manager with the suspiciously similar sounding job title to your own, or your colleagues

The most obvious sign of role erosion is the company employing someone to manage you with a suspiciously similar job title and description. If you are the Commercial Manager and report to the Managing Director, and the company has just decided to appoint a “Commercial Director” who doesn’t actually sit on the board and also reports to the Managing Director, then you can pretty much guess what’s down the road for you. The appointment of someone above you, especially if you are in a management position, is usually a good sign that your employer is trying to gently remove you without a fuss (or you realising). There is nothing unlawful or even apparently objectionable about employing someone to manage you, but it’s a massive flashing warning sign that things are not hunky dory.

The second most obvious sign usually accompanies the first, and that is that your roles and responsibilities are gradually prised away from you and given to either the new manager with the suspiciously similar sounding job title to your own, or your colleagues. This often happens over a period of months so that you can’t object too quickly and the employer has a litany of convenient excuses to fall back on, most of them encompassing the word “synergies”. If you suddenly find yourself twiddling your thumbs for four hours a day, retrace your steps and look at how that happened, because if it’s not a downturn in business, it’s likely that others are doing your role and the heavy footsteps approaching down the corridor outside your office is not the whole board with a bottle of champagne and a fat bonus cheque, but the size twelve hobnailed boots of the thickly-ankled HR manager carrying a thin letter containing an even thinner figure – i.e. the dreaded statutory redundancy payment.

So, you need to wise up and act quickly. Don’t let them get away with the “death by a thousand cuts” approach. Let them know that you know what’s going on. And when they know that you know, then they know you won’t take this lying down. You already know this, having read this book. Object to each decision in the strongest, but politest, terms. Always do this in writing and keep records of the e-mails. This way you are building up a record of your objections and increasing pressure on your employer not to take another step. If you suspect foul play (i.e. Andy from accounts has just told you that he’s now responsible for something that you used to do), then demand answers and explanations in writing. If you’re really getting nowhere you could make a Subject Access Request (see our article on SARs). If you keep up pressure on your employer then pretty soon it will get sick of you and, knowing that you’re wise to the game, with either approach you with a settlement agreement or the time will come (after the third or fourth incident) for you to raise a grievance or instruct a solicitor to set out the incidences (referring to all your e-mails) and offer a settlement agreement to compromise the potential claim of constructive dismissal that you have.

Scenario 4: Mental Health Absence

Employers, particularly HR professionals, hate sickness. They especially hate sickness that they cannot see, and therefore do not believe exists. Mental health is one of the most challenging issues of our times, accepted by parliament and the NHS to be a national (and indeed global, especially first world) epidemic, yet take time off for stress or depression or reveal any other sort of mental illness and doors will slam in your face quicker than a Mormon missionary in Vatican City. While all but the most heartless and unscrupulous of employer would allow an employee to take time off following a cancer diagnosis, support them through the treatment and welcome them back to work, the same cannot be said for issues of mental health. Regrettably, a significant number of our clients over the years have fallen ill because of stress, usually stress at work, and have found that their employer’s reaction, while paying lip-service to the usual requirements so as not to fall foul of disability discrimination, has, in actuality, been far from supportive, leading to marginalisation and stigmatisation.

If you are reading this and are currently signed off work with a stress related illness, or with anxiety or depression, we realise that this is not the sort of thing you want to hear. However, while some employers (especially certain corporates) deal with their employees’ mental health issues very well, the majority of employers do not. Some think the employee is lying, swinging the lead in order to take time off and try and manufacture an exit package. Others simply cannot countenance an employee with diagnosed mental health issues returning to work and working in a business where a mistake could cost money. Others still hold out-dated and often repugnant views about people with mental health problems. What this all boils down to is that if you suffer from a mental health condition and have taken time off as a result of it (or are on long-term sickness) then the chances of you being offered a settlement agreement are high.

What is vitally important for you to do in these circumstances, if you are offered a settlement agreement, is to draw the link between your illness and the offer of a settlement agreement. HR professionals are terrified of being accused of disability discrimination and having to go to an Employment Tribunal and justify their actions. Almost always the company will settle any claims or any threats of a claim well before this is necessary. There is therefore a premium to be paid by the employer if it offers a settlement agreement to someone who has diagnosed metal health issues, and you should not let your employer under-settle any claim you have.

Scenario 5: Redundancy

A redundancy situation does not always lead to a settlement agreement. If the employer is confident that it has conducted a fair process, it may decide to simply proceed to dismiss and run the risk of a claim. Furthermore, as alluded to above, most employers need not pay any more than statutory redundancy pay if an employee is selected for redundancy (clearly this differs if a contractually binding or union negotiated policy is in place, in which case the employer is unlikely to offer more in any event). However, many employers offer a settlement agreement with an enhanced redundancy payment in order to ensure a smooth exit from the business for the employees, and also to protect the company against any claims.

Each circumstance varies in a redundancy situation in which the employer offers an enhanced package under a settlement agreement. Some employers offer huge amounts even though they don’t have to, especially to high-earning employees. (This is known as a virtuous circle, in that departing employees are offered very generous terms because those employees making the offer – usually senior HR or board-level directors – want to ensure that precedent is set, and if they too were to depart, then they would get a large package as well). Some offer little more than statutory, but enough to make the employee accept if their situation is hopeless. What it is important to understand is that, usually, the terms are negotiable, and if they are not then focus on other areas such as bonus payments, the termination date, share options and holiday pay as points of negotiation to increase your overall exit package.

Scenario 6: Being Offered a Settlement Agreement

Yes, this is obvious, we know, but our point in including this is to remind you, the reader that just because you are being offered a settlement agreement does not mean that you must take what is being offered. You should treat this as the start of a negotiation, not the end of it, and for that reason being actually offered a settlement agreement is, for obvious reasons, the best time to start negotiating.

For further reading, take a look at some of our helpful articles about negotiating with your employer.

References: 1 Employment Rights Act s.111A affords the employer protection from having termination conversations being adduced in evidence against them if certain criteria are met.

Next steps

If you want to talk to us about your work situation, including your next steps and whether you deserve a better deal, just get in touch on 020 7717 5259 or click here to request a free no obligation 15 minute consultation.