Keep calm and carry on?

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The impact of the introduction of pre-termination negotiations and settlement agreements in practice

From 29 July 2013, discussions held between an employee and employer about termination of employment with a view to employment being terminated on agreed terms (referred to as pre-termination negotiations) are inadmissible as evidence in ordinary unfair dismissal claims.

According to the Prime Minister, this new law has been introduced so that “a boss and an employee feel able to sit down together and have a frank conversation – at either’s request”.

Protection lost if ‘improper behaviour’

The protection is lost where there is ‘improper behaviour’ including ‘undue pressure’. Litigation is almost inevitable over where the line is to be drawn between ‘improper behaviour’ and poor practice. Not allowing the employee a reasonable period of time to consider the formal offer or suggesting that, if the offer is not accepted, dismissal will be an inevitable outcome, is likely to constitute undue pressure and therefore improper behaviour. As is often the case in employment law, reasonableness is the watchword – so, where appropriate, factually stating that disciplinary action may be an alternative if a settlement agreement cannot be reached, is not likely to constitute improper behaviour or undue pressure.

Limitations of the new law

It is important to be aware that pre-termination negotiations and settlement offers will be inadmissible as evidence only in ordinary unfair dismissal cases (i.e. not in breach of contract, discrimination claims or claims for automatic unfair dismissal such as dismissals due to being a part-time/fixed-term employee, whistle-blowing or asserting a statutory right). It can often take only a little creative thinking to frame what appears to be an ordinary unfair dismissal claim as an automatically unfair dismissal claim or a discrimination claim, so employers should be alive to this.

In certain circumstances, pre-termination discussions could entitle an employee to argue that there has been a fundamental breach of contract entitling them to claim constructive dismissal – an attractive argument, perhaps, for a highly-paid senior management team member wishing to escape a long notice period.

Compromise Agreements are now Settlement Agreements

As from 29 July 2013, compromise agreements are to be renamed ‘settlement agreements’ and employers should ensure that their model compromise agreements are updated to reflect this change. This appears to be purely a relabeling exercise.

ACAS Code of Practice

There is a new accompanying ACAS Code of Practice on Settlement Agreements which provides statutory guidance. It is important to be familiar with and to follow this code because employment tribunals will take it into account when considering relevant cases. Notably, the ACAS code recommends a minimum of 10 days for an employee to consider a settlement offer arising out of a pre-termination negotiation, although this is not a mandatory period and parties can agree on another reasonable period.

The Code also contains a recommendation that employees be allowed to be accompanied at settlement agreement discussions by a work colleague or trade union representative. However, this is expressly stated to be “good practice” rather than a legal entitlement and it is to be hoped that a decision not to allow an employee to be accompanied to a pre-termination negotiation meeting will not result in protection being lost. In practice, employers are unlikely to want to allow employees to be accompanied by a fellow employee to any sensitive and confidential discussion that they hold as a pre-termination negotiation.

Keep calm and carry on?

So why has this new law been introduced? The stated aim is to give employers more freedom to agree voluntary terminations (effectively extending the existing (and unchanged) ‘without prejudice’ rule). In practice, however, it may well lead to uncertainty and unpredictable outcomes. When dealing with pre-termination discussions, employers would be well advised to consider if the existing ‘without prejudice’ protection is also available to them, i.e. where a dispute has already arisen. The ‘without prejudice’ rule and the new law on pre-termination negotiations can operate in tandem to maximise the chances of the discussions being inadmissible as evidence in any future litigation.