Understanding the Basics of Termination by Mutual Agreement

Any contract of employment may be legally ended when an employer and employee agree to do so. It is possible to make this agreement verbally as well as in writing. This agreement can be reached at any stage of the employment relationship. Termination of the contract can be agreed for a future date as well as for immediate action.

However, before you agree to terminate an employee’s employment there are a few legal requirements you should be aware of, the most important of which are outlined below. Reading our Your Responsibilities section will also be helpful.

Termination by mutual agreement will not be considered a dismissal. However, this is only the case if both parties, in particular the employee, genuinely agree to the termination of employment. Any hint of coercion could lead to an employee having valid grounds to sue for unfair dismissal and claim for statutory redundancy pay.

It is not enough for the employee simply not to protest the termination of their contract at the time they are informed of it. The possibility of terminating their employment must be formally discussed and the employee must actively agree to leave.

If it looks like an employee has agreed to the termination of their contract because of a dismissal threat, it’s likely that a tribunal will rule that the employee was forced to leave. That is to say, they were actually unfairly dismissed.

Even when financial incentives have been offered, if there is also a threat of dismissal the tribunal still may not agree that there was a mutual agreement of termination. The tribunal will work to uncover the real reason the employee said yes to losing their job. To determine what really happened, the tribunal will take into consideration the bargaining power of both the employer and employee.

Employers must also be careful about voluntary redundancy. When a firm genuinely has to make people redundant, even those employees who step forward and volunteer will be deemed as having been dismissed.  This is because without the offer of redundancy, those employees would not have left their employment of their own accord. Therefore, the fact that they volunteered is only considered an indication that they were “prepared to be dismissed”.  In the eyes of the law, those who volunteered for redundancy are still viewed as having been dismissed by their employer.

For more advice about avoiding legal pitfalls when making people redundant, contact us at Hylton Potts. You can do so by calling 0207 381 8111 or sending us an email.