Settlement Agreements & Pre-termination Negotiations Update


With effect from 29 July 2013, the government re-named ‘Compromise Agreements’ - they are now called ‘Settlement Agreements’. Settlement Agreements are legally binding and generally provide for an employer to pay an employee a sum of money in return for which the employee agrees not to bring Employment Tribunal proceedings against the employer arising out of their employment or its termination. In order to be binding the employee must take legal advice in relation to the Settlement Agreement and the Agreement must comply with certain statutory requirements.

Settlement Agreements Employment Law

Under its Enterprise and Regulatory Reform Act, the government has also introduced a new s.111A into the Employment Rights Act 1996 that provides for confidentiality of negotiations before the termination of employment. The provisions provide that evidence of pre-termination negotiations is inadmissible in unfair dismissal proceedings (although this does not apply in automatic unfair dismissal cases). Pre-termination negotiations are defined as any offer made or discussions held before the termination of the employment in question with a view to it being terminated on terms agreed between the employer and the employee.

Previously such conversations could be held between an employer and employee on a ‘without prejudice’ basis, which meant that the discussion could not be referred to in Employment Tribunal proceedings. However, such discussions had to arise out of an existing dispute.

No such pre-existing dispute is necessary as regards pre-termination negotiations under s.111A ERA. An employer can therefore now potentially call in an employee for a ‘chat’ where the ‘chat’ turns out to be a talk about how to end the employment relationship. In keeping with so many government initiatives, this provision is likely to do little for employee morale and loyalty.

There is an exception where if anything is said or done which, in the Tribunal’s opinion, was improper or connected with improper behaviour, the exclusion will only apply to the extent that the Tribunal considers just. Although the question of what constitutes improper behaviour is ultimately for a tribunal to decide on the facts and circumstances of each case, ACAS has provided some guidance on what may constitute improper behaviour in its Code of Practice on Settlement Agreements. For example:

  • where there has been unambiguous impropriety such as perjury or blackmail
  • all forms of harassment, bullying and intimidation including through the use of offensive words or aggressive behaviour
  • physical assault or the threat of physical assault and other criminal behaviour
  • all forms of victimisation
  • discrimination because of age, sex, race, disability, sexual orientation, religion or belief, gender re-assignment, pregnancy and maternity and marriage or civil partnership
  • putting undue pressure on a party, for instance
    • not giving a reasonable time for consideration (ACAS suggests 10 calendar days but what is reasonable will depend on the facts of the case)
    • an employer saying before any form of disciplinary process has begun that if a settlement proposal is rejected then the employee will be dismissed

Equally an employee could be found to have put undue pressure on an employer where eg they threaten to undermine the employer’s reputation if the Agreement is not signed (unless the whistleblowing provisions apply).

ACAS stresses that the above list is not exhaustive and that, further, nothing should prevent a party from setting out in a neutral manner the reasons that have led to the proposed settlement agreement or factually stating the likely alternatives if an agreement is not reached including starting a disciplinary process.

The obvious concern with this new law is that employees who are called in for any such pre-termination negotiations will feel that their days are numbered. However, it is also important to remember that employers cannot oblige employees to enter into Settlement Agreements; they are voluntary.

It is also important to remember that individuals are free to try to negotiate an improvement to any ‘deal’ offered by an employer.

ACAS also suggests that it is good practice for individuals to be afforded the right to be accompanied to pre-termination negotiations and detailed notes should be kept of such meetings in case any undue pressure is indeed applied.

ACAS also states that it is good practice for any offer to terminate to be given in writing ie for a draft Settlement Agreement to be provided to allow the individual to take legal advice on the offer.

It is also important to remember that the pre-termination negotiation provisions only apply to unfair dismissal claims. They do not apply to any other area of employment law eg discrimination, breach of contract etc., although the ‘without prejudice’ provisions may apply here.

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