Pre-termination negotiations and settlement agreements

Under the Enterprise and Regulatory Reforms Act 2013 (ERRA 2013) compromise agreements will be renamed ‘settlement agreements’ and employers will be given more freedom to have discussions with employees about a proposed settlement outside the context of an existing dispute.

The ERRA 2013 contains a new statutory provision to prevent a tribunal, when considering the fairness of a dismissal, from taking into account any offer or settlement discussion held with a view to terminating employment.  In essence, this is an extention of the current ‘without prejudice’ discussion principle to a situation where there is not yet an existing dispute.  Currently, although the label is often applied, ‘without prejudice’ conversations only genuinely take palce where there is an existing dispute between the parties being negotiated about. The new provision will enable an employer to raise performance or capability issues and include within the discussion a proposal to end the employment relationship on negotiated terms.  That conversation could not later be used as evidence that a subsequent decision to dismiss was predetermined, regardless of procedural obligations, in later ordinary unfair dismissal proceedings. The new provision may provide comfort to employers seeking to resolve a difficult situation.  However, there are limitations.  The statutory provision will only prevent what is stated in the settlement offer, or during discussions about it, from being admissible in ordinary unfair dismissal proceedings.  This means that the fact and content of such offer or discussions may be referred to in relation to other claims, such as automatic unfair dimissal, breach of contract and discrimination.  Also, the provision will not apply where anything said or done was ‘improper’ or ‘connected with improper behaviour’. The new statutory provision will be supplemented by an Advisory, Conciliation and Arbitration Service (ACAS) Statutory Code of Practice and guidance.  The Code will set out a non-exhaustive list of what might constitute ‘improper behaviour’ and ‘undue pressure’, resulting in the removal of the protection surrounding the settlement offer.  It will also set a minimum time period an employee must be allowed to consider any offer (7 days).