From 29 July 2013 employers and employees will be able to negotiate the terms of an employee’s contract termination without the risk of those discussions being referred to in any subsequent unfair dismissal claim in the Employment Tribunal, even if there is no existing dispute. Compromise agreements will also be renamed “settlement agreements” from this date.

Under the existing “without prejudice” rule, parties are allowed to have confidential discussions that cannot be used in court or tribunal proceedings. There are, however, some important differences between the existing rule and the new rule on pre-termination negotiations:

  1. The without prejudice rule only applies where there is an existing dispute between the parties. From 29 July parties will be able to have confidential discussions where there is no dispute.
  2. The new rule will only apply in ordinary unfair dismissal cases, and not where the dismissal is deemed to be automatically unfair (eg if the employee is dismissed because she is pregnant). It will not apply to any other type of employment claim, such as discrimination or breach of contract, although the existing without prejudice rule will continue to apply to such claims.  

The new rule will not apply if either party engages in improper behaviour, such as bullying, harassment, victimisation, physical assault and putting undue pressure on a party. Examples of putting undue pressure on a party include not giving an employee a reasonable amount of time to consider a settlement proposal (which ACAS recommends should be at least 10 days depending on the circumstances of the case) or an employer saying before a disciplinary process has started that an employee will be dismissed if he or she does not agree to the proposal.

ACAS has published a Code of Practice on settlement agreements. Tribunals may take into account any failure to comply with the Code, but such failure in itself will not make a party liable to proceedings, nor will it result in any adjustment to a compensation award.