If you are an under-performing employee or in dispute with your employer, there will soon be a mechanism in place to fast track you out of the business- but only if you agree. This follows Vince Cable’s announcement yesterday to introduce the use of “settlement agreements”, which is designed to make it easier for employers to agree terms with departing employees.But what are settlement agreements? Essentially, they are a renamed simplified version of “compromise agreements” which have been in use for many years. Despite the name change, a settlement or compromise agreement, is still a legally binding document which contains the full terms of a deal agreed with your employer meaning once signed, you cannot bring any claim against your employer. Because of this, you need to take independent legal advice on the agreement before signing and your advisor will also need to sign.

But the main difference of a settlement agreement is that the offers and discussions of a proposed settlement instigated by your employer cannot be used, or referred to, in unfair dismissal claims at an employment tribunal. Thus your employer will be allowed to approach you freely about a potential termination of your employment without any prior disciplinary process. At present, if your employer approached you out of the blue to have a frank discussion about ending your employment, you could use this as ammunition and claim constructive dismissal (assuming you have the qualifying period of service) by arguing that your continuing role is untenable.

So assuming you are faced with a “settlement agreement discussion” with your employer, what can you expect by way of severance terms, and what should you insist on? Well, the starting point is you cannot be forced to accept the settlement agreement, in which case all your employment law rights will be preserved.  Assuming you do wish to enter into discussions, you should ensure that the payments you receive compensate you as much as possible for your future loss of earnings until you find a new job. This is after all, how an employment tribunal would calculate the majority of your losses if you won a legal claim for unfair dismissal.

Unless you have already have another job to go to, it is not easy to ascertain how long you will be out of work, but as a general rule of thumb, a 6 month’s equivalent salary payment is considered to be a good settlement. This is especially as the first £30k of your settlement is capable of being paid without deductions for tax or NI (but this does not always include your notice payment).  Any offer will depend on the circumstances leading up to the discussions and the relative strength of any claim you may have.

Your severance payment could represent a windfall if you secured new employment within a short space of time, but similarly you could be out of pocket if you are still out of work after having utilised your full settlement payment.

You should also ensure that your employer agrees to provide you with a favourable job reference which is attached to the settlement agreement (even if it is only a factual reference). This is because employers are not otherwise legally bound to provide a reference, and may not feel inclined to do so if you are leaving under a cloud. Similarly, there should be a term in the agreement preventing your employer from bad mouthing you after you have left (and you would almost certainly have to agree a similar term).

You should furthermore address your mind to outstanding bonus payments. Many bonuses clauses in contracts of employment are expressed to be discretionary, and will not pay out where you have worked part of the year only. This is not to say, however, that a deal cannot be reached within the context of settlement agreement discussions.

There are many other provisions that you should look out for and taking professional advice is always best if you find yourself in this situation.

On balance, it is probably a good thing that employers will be able to have frank discussions with employees without fear of being taken to a tribunal for instigating those discussions. But as always, it is open to abuse by those employers who seek to take advantage of the unwary by getting them to sign away their rights. And the reality is whilst frank discussions will provide a “safe space” to resolve disputes, the mere fact of instigating discussions without prior process is likely to cause the end of the employment relationship whatever direction follows- which is what an employer wants. It’s  the equivalent of one party saying to the other in a  personal relationship out of the blue “I don’t love you anymore”. Who would hang around after that?

Philip Landau is an employment lawyer with Landau Law Solicitors