There has been general, if cautious acceptance of the use of “settlement agreements” to terminate employment, after Business Secretary Vince Cable spoke yesterday at the second reading of the Enterprise and Regulatory Reform Bill and gave further details of what they mean and how they will work.

According to Dr Cable, under these measures employers will be able to offer settlement agreements before a formal dispute arises and will be legally protected from this offer being used as evidence in an unfair dismissal tribunal case. Employees will also continue to enjoy full protection of their employment rights, as they can choose to reject the offer of a settlement agreement and proceed to a tribunal.

Dr Adam Marshall, Director of Policy at the British Chambers of Commerce (BCC) said: “For businesses, reforms to employment law must deliver clarity, simplicity and lower costs. The proposal to beef up settlement agreements will offer many employers the certainty and security they crave. That is provided that any offer made to end a contractual relationship with an employee cannot be used against them in employment tribunal proceedings.”

However, the CIPD’s response was more cautious.  Their Employment Relations Adviser, Mike Emmott said: “Employers need to understand that settlement agreements tabled in the context of without prejudice conversations will do nothing to protect them from discrimination or constructive dismissal claims if they act improperly.

“While the proposal is intended to cut red-tape and make life easier for employers, without very careful drafting there is a very real potential for the creation of complex disputes and legal arguments about whether any given conversation or settlement agreement falls within the new regulation.  This could create far more disputes and red-tape than the proposal is intended to cut through.”