One of the many reforms which the Enterprise and Regulatory Reform Act 2013 (the "ERRA") will introduce is in relation to compromise agreements with compromise agreements being renamed settlement agreements.

It is not only a change of name which is being introduced by the ERRA. Employees and employers will be able to enter into certain confidential, pre-termination negotiations which will be inadmissible in any ordinary unfair dismissal proceedings. Negotiations means any discussion or offer of proposed settlement terms. Such negotiations will only be admissible if there has been "improper behaviour". Under section 111A, in circumstances where it appears there has been "improper behaviour" the negotiations will only be permissible to the extent considered "just" by the court or tribunal. As these discussions will only remain inadmissible in ordinary unfair dismissal proceedings, they will continue to be potentially admissible in automatically unfair dismissal; breach of contract; or discrimination cases albeit the usual "without prejudice" rules will still apply.

The Government also decided as a result of their Ending the Employment Relationship Consultation to introduce a new ACAS Statutory Code of Practice on Settlement Agreements and to provide template letters which employers may use when offering settlement terms in a wide variety of situations. ACAS has this month published the final Code on Settlement Agreements. This final version has the following important differences to the previously published draft Code:-

  • There is no longer a requirement for the initial termination settlement offer to be in writing (although any final offer must be in order to be valid);
  • The template letters are not included and instead will appear in non-statutory guidance
  • The requirement that employees must have a minimum of 10 calendar days (as opposed to 7) to consider any settlement offer; and
  • Adding an expectation that employees will be accompanied at any pre-termination negotiations by a colleague or Trade Union representative albeit recognising that this is not a legal requirement.

The Code also provides guidance on what can amount to "improper behaviour" and indicates that all forms of harassment, bullying or intimidation; physical assault or the threat of physical assault or any other criminal behaviour; all forms of victimisation; discrimination on the grounds of any protected characteristic under the Equality Act 2010; or putting undue pressure on a party, will constitute "improper behaviour". This is not a definitive list but rather an indication of some examples of behaviour which would most likely be considered "improper".

Currently the common law or non-statutory rule of "without prejudice" exists, which prevents statements, which are made in a genuine attempt to resolve an existing dispute, from being put before a court or tribunal as evidence. An exception to this rule is where fraud, undue influence or some other "unambiguous impropriety" such as perjury or blackmail takes place. The Code indicates that any actions which would fall within the ambit of "unambiguous impropriety" would also constitute "improper behaviour" and therefore the case law in relation to the former will be relevant to the latter.

The Government has made clear that the new rules surrounding confidential pre-termination negotiations and the existing "without prejudice" rule are to run alongside each other. There are differences between the applicability of these two rules. In particular, there must be a pre-existing dispute between the parties for a "without prejudice" conversation to be inadmissible.

The latest timetable released by the Government suggests that this rule, along with the renaming of compromise agreements to settlement agreements, will be brought into force some time in Summer 2013.