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Are you Settling or Paying for Peace?

“Do you believe in cheque-book terminations?”

BY: GARY TAYLOR, HUMAN CAPITAL STRATEGIST AND IPM FELLOW

Iwas once asked this loaded question at an interview. To say it caught me by surprise would be an understatement, but it did get me thinking.

The question revolves around the issue of individual settlements, the kind of dilemma which all HR executives face, namely: are we prepared to pay what is necessary to make the problem person go away?

There are only few of us who would want to admit to cheque-book Employee Relations, and yet the more experienced HR Directors (when pushed) will admit to having approved some pretty hefty settlements in their time.

Offering a “full and final” settlement can arise from a whole range of circumstances, and is agreed to for a whole bunch of reasons. As a matter of principle, some employers prefer never to settle, and here’s why:

• “Bad Precedent” • The fear of creating a precedent is the greatest obstacle. The thinking goes “if we settle this case, then we will have every dismissed employee having a go at us.” There is some substance to the employer belief that (despite signed confidentiality clauses) settlements get leaked by vindictive ex-employees, as it is almost impossible to trace the source of the leak. No self-respecting HR director wants to be known as an easy touch.

• “Bad Public Relations” • From an internal PR point of view, it may appear that the employer has been forced to settle, ie they have a weak case, and are paying to appease their conscience for having made the wrong call, or having failed in procedural fairness. Everyone knows that the matter is going to be discussed in the hallways, and the employer does not want to be branded as paying for their mistakes.

• “Principle” - euphemism for Pride • HR departments preach that internal processes can legitimately be

challenged by lawful external routes. Therefore, it is almost flying in the face of due process to opt out by paying for the problem to go away. We like to say that “it’s a matter of principle” when we most often mean that it’s a matter of pride….corporate or individual pride.

• Deep Corporate Pockets • To back this up, companies have deeper pockets, and can generally ride out litigation more easily than individuals. Some employers even dare the ex-employee to take them on while looking for another job, at the risk of becoming an unattractive applicant with a reputation for “challenging the ex-employer.” The emotions of the case and people involved can generate corporate testosterone at toxic levels.

On the other hand, if there is one thing that good ER people have learned over the years, it is pragmatism. Labour jurisprudence is liberally sprinkled with cases which have drawn on for years – some more than a decade, and ER people do not relish drawn out cases. Lawyers have a different view of the word “settlement” to the one we use in general conversation. To labour lawyers, a settlement simply means resolution of the matter, ie it’s over. The parties might not be happy, but it ends the saga. Quote my IRDP Prof Blackie Swart at Stellenbosch Business School who said: “a good settlement is when both parties are equally the donner in!” This comment came after a lifetime of experience! So, what are the reasons in favour of “paying for peace”? A mixture of the following points make it worthwhile to some employers:

• Less Time; Less Stress • Primarily, it stops a long process, which is likely to involve important company people staying trapped in aggravation and a dispute-mindset, rather than focusing on the core business of the organisation. One of the delicate roles of the employee relations practitioner is explaining to line management just what is involved in the “let him take us on” option. The joys of hours and hours at the CCMA (if you can even get parking) let alone a court process in the expensive hands of the legal profession. This process does not care about year-end operational requirements, budgets, performance review season, etc., when witnesses (some of whom might have left you) are being dragged out of core operations to testify months later. This time factor is one of the reasons why arbitration is sometimes attractive, in that it brings relatively swift, non-emotive and final settlement for both parties.

• Agreement to Disagree • The mature employer realises that the end of an employment relationship is not really about “fault.” Particularly when the employer has decided that it no longer wants the individual in its employ, it is preferable to pay out a lumpsum rather than have a disgruntled and possibly subvertive person on the payroll while you grind through the technicalities of due process, appeals, and the cost of so many internal people, in addition to the legal fees.

• No-gamble Option • A full and final settlement carries with it the cost of buying the employer out of the vagaries of an unfavourable judgment from the CCMA or courts, whose judgments have on occasion been described as Russian Roulette. It is surprising that we’re okay to spend large corporate fees on other such uncertain activities as

Are principle and pragmatism really on opposite ends of a spectrum? Recruiters will tell you the “cost” of hiring someone, but what is the cost of keeping someone who shouldn’t be there?

marketing and promotions, but seem to think that an individual labour dispute is a sure winner.

• Corporate Image • An amicable “divorce” from a senior person probably does the corporate image better service than crushing him in court (let alone losing). If it has not worked out for a top person, try to find common ground, and let both parties walk away. The spin doctors will issue a statement about an amicable parting to pursue private business interests, and the matter is forgotten by detractors and external parties in no time. By contrast, an aggrieved ex-executive can come back to haunt you in ways you cannot imagine when revenge becomes their new goal.

Of course, there is no rule or guideline as to what constitutes the point of no return in a settlement. The USA seems to be very generous in paying people to leave. One well-known RSA powerhouse paid an about-to-join CFO several millions to NOT take up his signed offer when late references pointed out their hiring mistake.

Remember that the settlement is not just about paying money for someone to leave without a fuss. The astute HR settlement negotiator will be looking for other key issues to achieving resolution, such as preserving individual reputation, kind references, notice period, medical aid continuity and other very personal reluctance-to-sign issues, which often turn out to be deal-makers when resolved. Even the wording of the internal staff announcement is an important aspect to be resolved, to prevent the deal going sour. This is even tougher at executive level when shareholders might get involved.

Investigate lawful win-win options like a tax-free exit if the termination is an early retirement or retrenchment, which increases the size of the take-home settlement at no extra cost.

So, do you now believe in paying for peace? Are principle and pragmatism really on opposite ends of a spectrum? Recruiters will tell you the “cost” of hiring someone, but what is the cost of keeping someone who shouldn’t be there? What is the cost of not settling? It’s funny, but some people even baulk at the word “settle” when they believe it has the connotation of settling for second prize. Others prefer the win-lose scenario, and are prepared to endure a lot of blood to achieve a win.

Perhaps we can learn from the animal kingdom, where the battle might be rough, but mostly not with the intent of “taking the opponent out”. Most times, the parties just walk away and settle for an outcome which ends the conflict and allows both parties to get on with the important things of life.