If you need to remove an employee from your business, it can be a messy, costly and risky process. So, it is often in a business’ interests to avoid much of that by going straight for an agreed settlement. But when can you do that, and what is involved?
Perhaps you need to remove a senior executive, or a long-serving employee. Maybe it is because of their performance, behaviour, or strategic or organisational fit. If a business leader has already made a judgement about an employee, what is the point in going through the merry dance of a long and drawn out process just because employment law and HR best practice expects you to? In the end, there is usually only one reason, money.
This article may divide opinion, and it might surprise and upset readers who strongly believe in fairness and justice for employees.
But here’s the thing. Business owners have put a lot into building their business, and they are entitled to run it in the way they think is best. Sometimes that involves them making judgements about employees, and sometimes those judgements could be viewed by others as being “unfair”.
For the most part, business leaders make decisions for the right reasons and with the right intentions. Their goal is to do the best thing for the business. The people who they believe have the right mix of skills and behaviours, are the people they see as helping to take the business forward.
And many business leaders also don’t like having the really difficult conversations (the “you’re not performing well enough for our business” type conversations) that lead to proper performance improvement processes, and many don’t have the time to go through, or see the value or benefit in going through, that process anyway.
No employee is perfect. Just like a barrel of apples, the balance of good and bad points is constantly weighed up by the business leaders, often subconsciously, while they judge whether each is a good one or a bad one. Once identified, the bad apples are then cast to the side and generally won’t be considered again.
Once doubt creeps in over someone’s suitability, the position for that employee is rarely recovered. So many important business decisions are made partly on the basis of raw gut instinct (even if metrics are put around it to rationalise the decision). Why would decisions and judgements about people be any different?
When things reach that point, the necessary HR/Legal process is seen as a cost to the business. The poor performer is seen as a cost. The potential for an employment tribunal dispute is seen as a cost. And when all options represent a cost, the decision becomes an economical choice.
Rightly or wrongly, given the choice of investing time and energy in the hope of improving the position or performance of a poor performer, or focussing time and energy on something that will lead to immediate business benefits, entrepreneurial business leaders will choose the latter option pretty much every time.
And then there are the employees themselves. Cases of gross misconduct may sometimes be cut and dry, but when dealing with a history of behaviours, an accumulation of poor conduct, concerns over competence, or an inability to adapt to what the business needs, there are always different perspectives on the situation. Nine times out of ten an employee won’t think that they are doing so badly. That will often give them a negative or defensive mindset, which will probably just make things worse. They may think that someone “has it in for them”, that they have been somehow misguided by management (and maybe they have), or that they are being discriminated against (even when they aren’t), to rationalise why they are the subject of an unfavourable spotlight. It won’t be their fault (not in their mind).
And sometimes it isn’t anyone’s fault, it’s just the way things are.
It is always messy, and if the employee in question is a senior executive, or a well-liked long-serving employee, or anyone else whose acrimonious departure will send shockwaves through the whole business, it is often better not to go down the HR best practice route of a formal process.
Sometimes (often), you just need to do a deal.
But the business does have a choice, and it looks broadly like this:
Option 1 – The hope and pray strategy
If the employee isn’t causing too much damage to the business, then the prospect of the disruption and/or cost of either a formal process or an employment dispute may be so undesirable that the business leaders decide not to do anything with the employee. They park the issue and hope that either things will improve (they won’t), or that the employee will decide to leave (they usually don’t).
Option 2 – The active management strategy
This is when the business decides to follow HR best practice and will often be the preferred route for large corporate or institutional employers. It involves investing time in trying to improve the situation. This will benefit the legal position of the business, if you ultimately want to dismiss the employee without a settlement. If there is either a real desire to give the employee a chance to improve, or if the situation is such that there is no desire to offer any settlement – then this is the right way to go.
Option 3 – The nuclear option.
You have a big red button, and you press it. This is where you take decisive action without following a process (or entering a negotiation). Now you are in a dispute and it is all about resolving that dispute. The ride will be rough, and the fallout can be significant, but sometimes (rarely) this is still seen as the best option.
Option 4 – Let’s do a deal
You are dealing with the issue, but avoiding the process (or some of it), or the dispute that might follow. This involves having a “without prejudice” discussion with an employee that hopefully leads to an amicable departure. Agreed terms, agreed announcements, and an enhanced severance package, with limited residual risk. There is usually a bigger up-front cost to this, but the business can draw a line under the whole matter and move on quickly to focus on core business sooner, so the ultimate cost is often less (and sometimes much less).
This article is really about option 4, and doing the deal. How and when should you do that?
You can start the conversation and make a proposal for an agreed severance at any stage. If it is set in context as an alternative to formal process (whether an active or potential process), that will improve the business’ negotiating position. If it is not set in context, the employee may negotiate for a bigger severance package. Making the proposal towards the end of a formal process puts you in the best negotiating position, but you won’t have avoided as much of the cost and distraction of that process.
There are a number of ways to skin the proverbial cat, but the process usually goes something like this:
- First, you need to decide what kind of offer you are going to make. Is it a one time offer with no negotiation? Or do you want to start lower with room to negotiate? Remember that they will have minimum contractual and statutory rights. Your offer is what you are willing to give on top of that.
- Then, consider whether you have a “broker” who you can use. This is particularly helpful when emotions are running high. Is there someone who is more detached from the relationship, or the situation, who can handle your dialogue with the employee?
- You need to set the scene and break it to the employee that things are not going well. Explain that you are considering engaging a formal process, or if that process has been engaged then it isn’t looking good.
- You need to tick the legal boxes. Approach the start of the conversation as a normal management conversation, and then once you have set the scene ask the employee whether they are willing to talk on a “without prejudice” basis, and explain what that means from a legal perspective.
- Make sure you don’t make silly mistakes. Your outward position should be that the without prejudice offer is an alternative to a formal process, the outcome of which is not yet known and could go either way.
- You should make a serious offer. An offer that will be attractive to the employee when faced with the alternative as they see it. Low ball offers generally don’t work and will leave the employee feeling like they have nothing to lose by walking away from the deal.
- You should set and control the timetable. You should give them up to at least 10 days to consider the initial offer, but you don’t need to continually extend that period, and you can tighten up the timetable as much as you like in the stages that follow.
- Know when to negotiate, and when not to. Remember, it is a compromise. You should have a negotiation plan in your head when you start, but things can change. That works both ways and you may need to lay down an ultimatum, communicate a final offer, or walk away from the deal and try something else.
- Assuming the deal can be done, it needs to be tied up in a legally binding settlement agreement, which you should instruct your lawyer to prepare if you want to be robust.
- The employee will need to seek their own independent legal advice on the agreement (that is one of the requirements to make it legally binding), and it is common practice for the employer to pay a contribution towards the employee’s legal costs for the agreement.
- You can either provide a copy of the draft settlement agreement when you make the initial offer, or do it when the key settlement terms have been agreed in principle, which is a tactical consideration.
Once you have the completed settlement agreement signed by all parties, you can rest easy and get back to focussing on your core business.
Every situation is different, so it would be wrong to treat this as a one size fits all guide. It isn’t. But the up-front investment to achieve a settlement in this way will often lead to the most beneficial outcome for the business in the long term.
The content of this article is not intended to be specific legal advice. If you require any assistance in relation to this area of law, please contact Matt Huddleson.