As of Monday 29 July 2013, claimants are prevented from referring to pre-termination negotiations in ordinary unfair dismissal claims unless there had been “improper behaviour” and compromise agreements will be known as “settlement agreements”.

Acas has issued a statutory Code of Practice on settlement agreements and pre-termination negotiations. The Code provides employers a list of “do’s” and “don’ts” when entering into settlement agreements and conducting pre-termination negotiations. A copy of the guidance can be found following the link here. We expect further non-statutory guidance later in the summer.

Pre-termination negotiations

What is happening?

Section 14 of the Enterprise and Regulatory Reform Act 2013 (ERRA 2013) provides that “pre-termination negotiations” (which will include any offer of settlement and its proposed terms) will be inadmissible in any subsequent ordinary unfair dismissal claim unless there has been improper behaviour. As a result, any offer to end the employment relationship and the discussions around it will remain confidential. The change is designed to provide employers with greater protection and, therefore, allow them greater flexibility in using confidential discussions as a means of ending employment.

Which claims will it apply to?

The new rule will not apply where there has been any improper behaviour on the employer’s part. Until there is case law on the definition of this term it is impossible to say with any certainly what this will involve. However, the Acas guidance provides some examples. These include harassment, victimisation, criminal behaviour, discrimination, and putting an employee under undue pressure.

Even where there is improper behaviour, pre-termination negotiations will only be inadmissible if the tribunal considers it just.

It is important to note that this change only applies to ordinary unfair dismissals and does not extend to any other cases, for example automatically unfair dismissals (including whistleblowing and union membership), discrimination, breach of contract, and wrongful dismissal. In relation to these other claims employers will need to continue to rely on the “without prejudice” rule to prevent employees from referring to those negotiations during any subsequent proceedings. It is important to remember that the without prejudice rule will only be effective where without prejudice discussions are entered into as a genuine attempt to settle a dispute which already exists between the parties.

Could such discussions be the subject of a claim?

This change in the law will allow employers to introduce settlement agreements where there is no existing dispute. However, this may raise additional issues. For example, what about the employee who had no idea there were any issues with his employment who is presented with an agreement? Could they resign as a result of any such discussions and bring a claim?

Provided there is no improper behaviour, the employer will be protected in any subsequent unfair dismissal claim for constructive dismissal. However, it is unclear at present as to whether or not such conduct could give rise to a claim for breach of contract including wrongful dismissal. This will not be of major concern where the breach gives rise only to a small claim for notice pay. However, what if the discussions were with a senior executive? Any breach of their contract could be much more costly as their contract is likely to include bonuses, share options, restrictive covenants and longer notice periods. This will, ultimately, be a matter for case law.

Settlement agreements – the renaming of compromise agreements

Section 23 of the ERRA 2013 renames compromise agreements and compromise contracts as “settlement agreements” in all relevant pieces of primary legislation. However, other than a new title, very little else is changing for these agreements which are regularly used by employers to avoid claims by employees.

Unfortunately, perhaps due to an oversight, the legislation does not specify whether the change of name should also apply to secondary legislation, such as regulation 35 of the Working Time Regulations 1998 (WTR). As a result it is currently unclear whether an agreement, for example, settling a claim for unpaid holiday under the WTRs should, technically, still be referred to as a compromise agreement.

Conclusion

Overall the changes to pre-termination negotiations and settlement agreements will have little effect in practice. The former works to extend the without prejudice rule in ordinary unfair dismissal claims to situations where there is no existing dispute (and no improper behaviour). The latter appears merely to be a formal name change.