Negotiating the termination of employment - when does the dismissal take effect?

It is not uncommon for an employer and an employee to agree to part company on mutually agreed terms.

August 21, 2008

Often the employee will stay away from work until the terms of the termination of employment are agreed, which will typically be contained in a “compromise agreement”. The compromise agreement will contain a termination date, which could be a date before or after the date the agreement is signed. But what happens if negotiations break down after the agreed termination date – is the employee’s employment still regarded as having terminated on that date?

This question was recently considered by the Employment Appeal Tribunal (EAT) following a claim for unfair dismissal brought by a teacher, Mr Radecki, employed at a school run by Kirklees Metropolitan Borough Council.

Facts

Mr Radecki was suspended in October 2005 pending a disciplinary hearing. In the meantime, negotiations began between Mr Radecki’s union and the council with a view to agreeing terms for the mutual termination of Mr Radecki’s employment. A draft compromise agreement was produced which was expressed to be “without prejudice” and “subject to contract”. The draft agreement stated that Mr Radecki’s employment would terminate by mutual consent on 31 October 2006.

In the event, negotiations over the settlement terms continued beyond 31 October 2006. However, the council was satisfied, by November 2006, that the parties were close to agreement and so removed Mr Radecki from its payroll from the date at which his employment had been due to terminate under the draft agreement. Unfortunately, negotiations subsequently broke down and, in February 2007, Mr Radecki rejected the draft compromise agreement. In response, the council wrote to Mr Radecki confirming that, as far as it was concerned, his employment had terminated on 31 October 2006.

Mr Radecki’s claim

Mr Radecki submitted a claim to the employment tribunal for unfair dismissal. Normally, claims for unfair dismissal must be brought within three months of the effective date of termination. If, as the council believed, Mr Radecki’s employment had terminated on 31 October 2006, then his claim would have been out of time. However, the EAT held that, despite the fact that the draft agreement identified 31 October as the termination date and that this was when the council had removed Mr Radecki from the payroll, Mr Radecki was not dismissed on that date. Instead, his dismissal did not take effect until 5 March 2007 when the council wrote to him confirming the termination of his employment on 31 October 2006.

Legal approach

A contract of employment can be terminated only by mutual agreement or by an unequivocal termination by one party. The EAT found that the compromise agreement could not be relied upon as evidence of a mutually agreed termination date given that it was expressly “without prejudice” and “subject to contract”. That meant that the draft agreement was not binding and that either party was free to withdraw from the negotiations at any time before the agreement was finalised.

The EAT also rejected the argument that the actions of the council in removing Mr Radecki from the payroll, keeping him away from work and not inviting him to a disciplinary hearing, amounted to an unequivocal termination of his employment. It held that these were all acts that were consistent with the suspension of Mr Radecki while the parties conducted their settlement negotiations. The first act that could be regarded as an unequivocal termination of the employment relationship was the council’s letter of 5 March 2007 and this was therefore the date of termination, not 31 October 2006.

Implications of the case for employers

Employers will often wish to identify a termination date when seeking to negotiate a compromise agreement, not least because it will give both parties an incentive to reach settlement terms promptly. However, if a proposed compromise agreement is not underpinned by a potentially fair reason for dismissal, the employer will inevitably be in a much weaker negotiating position and that is where the problem encountered by the council in the Radecki case may well arise. To avoid this situation, employers should always ensure that they are in a position to revert to a formal dismissal procedure in the event that negotiations do become protracted or break down.

Diane Gilhooley is HR expert in the education team at Eversheds.

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