How Does Being On A Performance Improvement Plan (PIP) Impact My Settlement?
By Geoffrey Caesar, specialist settlement agreement solicitor.
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Being placed on a Performance Improvement Plan (PIP) can have a significant impact on your employment and may also influence the terms of a settlement agreement if one is offered. A PIP is typically implemented when an employer feels that an employee’s performance isn’t meeting the expected standards, and it often includes specific targets for improvement over a set timeframe. If you’re on a PIP and in discussions about a potential settlement, here’s how the PIP could impact your settlement negotiations, potential compensation, and your overall options.
1. Why Employers Use PIPs and Their Role in Settlements
Employers often use PIPs to document performance issues formally and to provide a structured approach to improving performance. In some cases, however, a PIP can be a preliminary step toward dismissal if performance doesn’t improve. From the employer’s perspective, a PIP creates a record of the steps they took to address performance issues, which can be useful in case the employee challenges their dismissal later.
For this reason, employers sometimes offer a settlement agreement to employees on a PIP. A settlement allows the employee to leave the company voluntarily, often with a compensation package, instead of waiting to see if they pass or fail the PIP. This can be beneficial to both parties, allowing the employer to resolve the situation quickly while enabling the employee to avoid the potential consequences of a failed PIP.
2. Negotiating a Settlement While on a PIP
If you’re on a PIP and your employer proposes a settlement agreement, it’s important to recognize that being on a PIP may impact your negotiation leverage. Since the employer has already documented performance concerns, they may feel they have grounds to dismiss you if the PIP is unsuccessful. As a result, the initial settlement offer may be lower than what would typically be offered in a redundancy or mutual termination situation.
However, this doesn’t mean you have no negotiating power. You can still negotiate the terms based on factors such as:
- Your Employment Record: If you have a strong record of performance prior to the PIP or can demonstrate that the issues on the PIP were due to circumstances beyond your control (such as lack of training or resources), this can support a case for a fairer settlement amount.
- Avoiding the Stress and Uncertainty of the PIP: Many employees prefer the certainty of a settlement agreement over the anxiety of working through a PIP. Employers recognize this and may be willing to offer a reasonable settlement to help you transition smoothly out of the role.
- Minimizing Employer Risk: An employer may also wish to avoid potential disputes, grievances, or claims that could arise if the PIP process is deemed unfair. Pointing out any inconsistencies or lack of support during the PIP process can strengthen your case for a better settlement.
3. Impact on Settlement Amount and Terms
When negotiating a settlement while on a PIP, the terms and amount may differ from standard settlements. Here’s what to consider:
- Compensation Package: Since a PIP can lead to termination if not completed successfully, employers may offer a smaller compensation package than they would in a redundancy situation. However, with a well-argued case, you may be able to negotiate an enhanced settlement, particularly if the PIP appears questionable.
- Notice Pay and Payment in Lieu of Notice (PILON): Your settlement should typically include pay for your contractual notice period. If the employer proposes a quick exit, they may offer payment in lieu of notice (PILON), allowing you to leave immediately while still receiving payment for the notice period. The PILON should be based on your regular salary and other contractual entitlements, so make sure this is factored into any settlement offer.
- Non-Financial Terms: Non-financial elements, like a positive reference, can be especially valuable when you’re on a PIP. Employers may agree to provide a neutral or agreed-upon reference, which can help ensure your departure doesn’t impact future job prospects. This could be important if the PIP might otherwise raise questions about your performance.
4. Risks of Declining a Settlement While on a PIP
Declining a settlement while on a PIP comes with its own set of risks. Here are some key considerations:
- Risk of Dismissal: If you decline the settlement and do not successfully complete the PIP, your employer may decide to terminate your employment based on performance. A dismissal on performance grounds could affect your ability to negotiate future employment and may impact any future claims.
- Reduced Compensation: If the PIP ultimately results in dismissal, any future settlement offers may be less favorable or non-existent. Employers are often more willing to negotiate favorable terms if they believe it will avoid the need for dismissal.
- Potential for Future Claims: While being on a PIP can impact your settlement terms, it’s also worth noting that a poorly managed PIP process could give rise to claims, such as unfair dismissal or discrimination, if it seems that the PIP was implemented in an unfair or discriminatory manner. However, if you sign a settlement agreement, you’ll likely waive your rights to bring such claims, so weigh this carefully with legal advice.
5. Assessing the Fairness of the PIP Process
If you believe the PIP process is unfair or unreasonable, this can be an important point in your negotiations. Look for signs such as:
- Lack of Support or Guidance: If the employer has not provided adequate support or resources to help you meet the PIP goals, this could indicate an unfair process.
- Unrealistic Targets: Sometimes, PIP goals are set unreasonably high, making it nearly impossible for employees to meet the expectations. If you feel the PIP goals were unrealistic or that they set you up for failure, this can support your case for a more favorable settlement.
- Discrimination or Bias: If the PIP appears to be targeted or unfairly applied, consider whether discrimination or bias could be a factor. For example, if other employees with similar performance have not been placed on a PIP, this could suggest unfair treatment.
A solicitor can help you assess the PIP process and build a case around any potential unfairness, which can be valuable in negotiating better settlement terms.
6. Seeking Legal Advice for Your Settlement While on a PIP
Given the potential implications of a PIP on your settlement, consulting a solicitor can help you fully understand your options and negotiate effectively. A solicitor can help you:
- Evaluate the Offer: Review the initial settlement offer in the context of your employment record, the PIP, and your goals.
- Build Your Negotiation Strategy: Identify areas where the employer may be willing to compromise or enhance the offer, especially if the PIP appears unfair.
- Consider Potential Claims: Assess the risk of future claims if the PIP process is flawed or discriminatory and balance this with the advantages of the settlement offer.
- Clarify Non-Financial Terms: Negotiate favorable non-financial terms, such as references or confidentiality clauses, which can be valuable in preserving your professional reputation.
Final Thoughts
Being on a PIP doesn’t necessarily prevent you from securing a fair settlement, but it can affect the terms and your negotiating position. A PIP is often a prelude to potential dismissal, so accepting a settlement may provide certainty and an opportunity to leave with a negotiated package. However, it’s essential to carefully review any settlement offer, understand your rights within the PIP process, and seek legal advice to ensure the best possible outcome.
A solicitor can help you weigh the benefits of settling versus completing the PIP, assess the fairness of the PIP process, and negotiate the best possible terms based on your circumstances.
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