Protected Negotiations: A Potential Game Changer for Small Businesses

If you’ve ever had a staff member who just isn’t the right fit, but there’s no clear misconduct or formal dispute, you’ll know how tricky it can be to end the relationship without risking a personal grievance.

Right now, the law only allows “without prejudice” exit talks when there’s already a dispute on the table. But a proposed law change could give small business owners a new option “Protected Negotiations”

What’s Changing?

The Employment Relations (Termination of Employment by Agreement) Amendment Bill aims to let employers start confidential exit talks without needing a formal dispute first.

Under the proposal:

• You can offer an exit package e.g., payout, reference, mental health support etc in exchange for ending employment by mutual agreement.
• All discussions remain confidential and inadmissible in future legal claims (unless dishonesty or bad faith is involved).
• The offer must be in writing, signed, and you must advise the employee to seek independent legal advice and give them a reasonable chance to do so.

The bill is currently with the Select Committee, expected to report back in October 2025.

How would this work in reality?

Current Law: Jane owns a small printing business. One of her designers, Sam, is a good person but constantly misses deadlines and struggles with the fast-paced environment. There’s no serious misconduct, just a mismatch. If Jane raises the idea of parting ways now, she risks Sam claiming “constructive dismissal” unless she goes through a lengthy performance management process.

Under Protected Negotiations: Jane could approach Sam for a confidential, “protected conversation”:

“Sam, I can see this role isn’t playing to your strengths. I’d like to discuss a mutual exit that supports you in finding something more suitable. I’m happy to offer four weeks’ pay, a written reference, and flexibility on your finish date.”

Sam is encouraged to seek legal advice before deciding. If Sam accepts, they sign a written agreement, and the exit happens smoothly, without a drawn-out legal process.

The UK has something similar called “Protected Conversations” under the Employment Rights Act 1996. Employers can initiate “off the record” settlement discussions for any reason, not just disputes.

UK Business owners found that this enabled:

· Faster resolution when someone isn’t the right fit.

· Reduced legal risk from informal conversations being used against you.

· Preserved relationships by keeping talks dignified and private.

Obviously, this is still under consideration, but this could be a great tool to use to manage “challenging employees”. However, like any tool, it works best when used carefully, fairly, and with a clear understanding of the risks.

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