CHARLES SANDHU- And - JAN DE RIJK TRANSPORT LTD  EWCA Civ 430
This case was decided by the Court of Appeal and its decision given on 10th May 2007. It is a useful reminder of the issues involved in determining whether an employee was dismissed when he has negotiated a settlement deal. This question arises when a deal has been done but not entered into under the auspices of ACAS or via a compromise agreement (now referred to as a settlement agreement).
In such a case, even though, for example, the employee has signed a letter saying he resigned and has accepted money in return, he or she may still claim unfair dismissal. The only real way to be sure that an employee who has agreed a deal cannot change his or her mind is to enter into a compromise or settlement agreement or to involve ACAS.
Imagine one scenario in which an employer takes the employee aside and says we are going to sack you unless you resign now. If the employee resigns it is clear that the operative cause of resignation was the immediate threat of dismissal and so he or she can claim unfair dismissal. Now imagine another scenario: the employee is properly invited to a disciplinary hearing and warned that dismissal might be an outcome. Before the hearing, he resigns. In such a case the employee has resigned and has not been dismissed.
The case involving Mr Sandhu was similar to the first scenario. He was invited to a meeting about which he knew nothing and had not had notice. At the outset, he was told he was being dismissed. For the rest of the meeting, he did as best he could in getting as much money as possible and then signed a resignation letter. Both the original tribunal and the EAT found that he had resigned and not been dismissed. It was left to the Court of Appeal (at great expense all round) to correct the seemingly obvious point that Mr Sandhu had been dismissed.
We can gather the following useful information from this case:
where an employee is effectively told you either resign or you will be dismissed that resignation would be deemed to be a dismissal.
Equally, where a person chooses to resign rather than to be the subject of disciplinary proceedings, as in Staffordshire County Council v Donovan  IRLR 108, that will be held to be a resignation as the outcome of the disciplinary hearing would not be known.
The question for the tribunal is to find what caused the employee to leave. If he left because of dismissal or the threat of dismissal he will have been dismissed. But if he leaves because he has freely negotiated terms satisfactory to him without undue pressure he will have resigned. Note the use of the work satisfactory. The courts’ use of this phrase implies that a value judgement has to be made to determine whether the terms are satisfactory or not. The employee claiming that he has been dismissed will say that the terms are not satisfactory to him. In the Sandhu case the Court of Appeal did actually take into account the fact that the terms negotiated by him were not that good : “I do not think that it can be said that the terms he was able to obtain were particularly favourable to him. He achieved three months’ salary, and the short term retention of the use of the respondent’s motor car and mobile telephone. .. this was pretty small beer.”
The cases decide that if the departure of the employee is caused by the threat of dismissal if he does not resign, or if the agreement to resign is not a genuine one and arrived at without pressure, then there is a dismissal. But they leave open the possibility that the cause of the departure is not the threat of the dismissal, but is the agreement which is arrived at and possibly the payment of money as a result of that agreement.
Turning to what employers can learn from this case. Firstly, see this site’s Resources section for an article entitled ‘Settlement Agreements a major trap for the unwary’. It deals with the fact that unless there is an existing dispute to compromise, ‘without prejudice’ discussions may not be protected and thus can be relied on in court. It also explains that launching into compromise agreement discussions without preamble and without an existing dispute can be constructive dismissal itself.
Thus, employers who want someone to leave and are willing to enter into a settlement must ensure that there is an existing dispute first. Thus, invite the employee to a disciplinary or performance hearing. If the employee comes to you with a request for settlement your negotiating position is much stronger. During the disciplinary process, the employer can safely introduce the concept of a negotiated settlement. However, if you have introduced the subject your negotiating strength is weaker.
Do not fall into the trap of allowing the employee to go off on leave pending negotiations or fail to proceed with the relevant procedure as otherwise you will find yourself well down the line with no deal and being no further on in the process. We did a couple of cases for executives a year or two ago against a major software company. Its HR department had made the mistake of allowing the executives to go on leave pending settlement. Months later we still hadn’t settled (we were in no hurry to do so) so the Company had a choice of getting the employee back to work, which it usually won’t want to do, sacking unfairly and therefore allowing a perfectly good claim for unfair dismissal or accepting our terms.
Do not negotiate the deal with the employee at the same meeting in which the question of dismissal has been raised. In such a case the employee will not have had time to think, will not have had legal advice from an employment solicitor and the court will be likely to find that even though he agreed the terms, he was still dismissed.
Make sure that the evidence points to the employee having genuine choice about the terms of the deal.
Make sure the deal isn’t utterly one-sided against the employee.
Don’t do private agreements or homemade settlement agreements, instead, use ACAS or a proper settlement agreement. Any company that wants a precedent settlement agreement should ask us to draft one.
Make sure you behave properly. In the case of Sandhu the Company’s conduct was found to be unacceptable for a number of reasons. It did not appear to have conducted any investigation into Mr Sandhu’s alleged misconduct before summoning him to the meeting. It did not tell him in advance what the charges against him were. It did not suggest that he could or should take advice before attending the meeting, or that he could bring a representative or adviser with him. It kept no record of the meeting. It made up its mind to dismiss him before it had heard what he had to say about the allegations. It did not appear to have any proper grievance, dismissal or appeal structures in place. It did not properly consider Mr Sandhu’s correspondence after the event. All these points counted against the company such that the Court allowed Mr Sandhu to claim unfair dismissal.
Finally, and this isn’t news it’s a commercial break; time and time again we act against companies that, before discussing termination with the employee, have not worked out what the employee’s claims are worth. If you have to, get a firm of employment solicitors like ours to work out precisely what the employee’s claims are worth. This includes contract rights such as notice, pay and benefits to the date of termination (including issues of bonus and/or commission), and rights conditional on termination such as enhanced redundancy and share option rights. It also includes unfair dismissal rights and statutory rights such as rights to minimum periods of consultation and holiday pay. Any good employment solicitor should be able to calculate these claims within a very short space of time. Before you instruct the employment solicitor put together a pack of documents containing the service agreement or contract of employment, any bonus and commission details and details of the last few months’ pay net and gross. Sending these to the solicitor first will save cost because otherwise the solicitor is simply going to review the file then ask for the documents.