The decision last month by P&O Ferries to dismiss 786 seafaring workers without notice sparked understandable outrage from pretty much every quarter.

Indeed, employers who feel they have to jump through hoops to dismiss employees who are underperforming, or who have committed disciplinary breaches, will likely have been left scratching their heads as to how P&O Ferries was able to take such drastic action.

While the considerations in this specific case are somewhat muddied by the fact that the workers in question were employed on ships registered in other jurisdictions, the short answer seems to be that P&O Ferries could not do this without breaching employment law.

However, it has judged that the cost of compensating the workers for being dismissed without notice is less than the losses it would have incurred, had it kept them employed, something contract lawyers refer to as an ‘efficient breach’.

Of course, what the firm may not have adequately accounted for are the currently unquantifiable costs of the damage it has incurred to its reputation and the potential legal changes to minimum wage rules arising from the high-profile nature of the sackings.

There are also disputed issues around whether the firm needed to inform the secretary of state of its intention to make so many employees redundant.

What about SMEs?

By their very nature, SMEs do not employ such large numbers of people to be able to make mass dismissals on this scale.

Even if they were to take such drastic action involving a much smaller number of employees, it is unlikely they would attract the same kind of damaging attention from the press and politicians.

And, in circumstances amounting to redundancy, the costs for a privately-owned SME employer of compensating workers would likely far exceed any benefit of acting immediately to dismiss.

So, is there anything SMEs can take from this?

Yes – and this is one element of the approach P&O Ferries has taken that can be useful for employers of all sizes – the use of Settlement Agreements.

It has been reported and seems likely, that P&O Ferries has used Settlement Agreements in an attempt to reduce the chances of protracted disputes at the Employment Tribunal.

Essentially, in these circumstances, a Settlement Agreement would basically involve the employer agreeing to pay the employee a sum greater than they would likely be awarded by a tribunal in exchange for the employee waiving their right to bring a claim

While P&O Ferries’ approach is not a good one for SMEs to emulate, the use of Settlement Agreements to bring a mutually acceptable resolution to an employment dispute can be.

Where there is a dispute or a member of staff is underperforming, the business case for offering a Settlement Agreement is that it can be far less costly in time and money than pursuing a drawn-out process towards a dismissal or risking a tribunal claim.

How do I offer a Settlement Agreement?

There are strict rules you will need to follow to ensure that a Settlement Agreement is legally binding and so your first step should be to seek legal advice.

For help and advice with related matters, and to seek legal advice, please get in touch with our People team today.