You may be familiar with the term “compromise agreement”. This is a termination document which you are often asked to sign when you leave employment to ensure that you cannot make any claim against your employer. Later this year, the document will be renamed “settlement agreement” and is being introduced by a new law, which is part of the Enterprise and Regulatory Reform Bill presently going through Parliament. But that’s not all.

As part of the employment reforms proposed in the new legislation, employers will be encouraged to have “open and protected conversations” with their staff where they are not happy with their performance, attendance or conduct. During these conversations, an offer to leave on agreed terms can be put forward and which would invariably include a tax-free lump sum payment and a reference. If you were to accept such an offer, you would then enter into the formal “settlement agreement” setting out the full terms.

Although this may appear to be a similar requirement to where there is a compromise agreement under the existing legislation, the main difference in approach with the new law lies here: you will not be able to use the existence of the offer of settlement you have received from your employers in any subsequent unfair dismissal case.  This is even if the offer arises out of the blue and without any existing dispute. Under current law, if that happens you can use such an offer as evidence that your employer wanted you out- even if your employer’s communication is expressed to be “without prejudice”. This can often form the backbone of a claim for constructive dismissal.

So the new law will allow and encourage employers to embark on protected fast track settlement conversations, with that protection only being lost if there has been “improper behaviour” (such as putting undue pressure on an employee to enter into the agreement). You will not, however, be obliged to accept the settlement terms on offer and a draft code from ACAS issued last week says employees should have a minimum 7 day cooling off period to consider an offer and obtain legal advice.

So is the new law a good thing? It is possible to see the employer’s point of view. If your work is not up to scratch, why waste time going through a formal process? It is a far quicker and more honest approach if the employer can “cut to the chase” and embark on settlement discussions straight away without fear of reprisal. This is especially if the employer knows that there is no long term future for that employee in any event.

And yet for the employee, it will be a different story. There may be some who will welcome an accelerated pay-off which is clean and unhindered from any disciplinary process. For others, who are faced with a sudden notice of divorce from their employer, the trust and confidence which underpins every employment relation will have evaporated in a flash. They will know they are not wanted. And yet they will not have the ammunition against their employer to be able to rely on the settlement offer in a tribunal claim as evidence of their employer motives.

Even if you reject the offer and elect to go down the standard disciplinary or grievance process which you are entitled to do, this could prove pointless as the relationship at that very early stage will have all but dissipated.

I have little doubt that once a protected conversation is instigated, the majority of cases will lead to an agreement being reached- as long as the payment terms are sufficient. You should certainly not accept the first offer though, and you need to be careful about not compromising your rights without the benefit of proper advice.