Today's blog concerns the change in name of Compromise Agreements to Settlement Agreements and confidential pre-termination negotiations.

From 29 July, employers and employees will be able to enter into confidential pre-termination negotiations which will be inadmissible in any ordinary unfair dismissal proceedings unless there has been improper behaviour. "Negotiations" means any discussion or offer of proposed settlement terms. If it appears that there has been "improper behaviour" the negotiations will only be permissible to the extent considered "just" by the court or tribunal.

ACAS have published a statutory code of practice on Settlement Agreements and the final version of the Code of Practice on Settlement Agreements was published earlier this month.

The Code includes a list of what can amount to improper behaviour. For example, it provides that all forms of harassment, bullying or intimidation; or physical assault or the threat of physical assault or any other criminal behaviour, will constitute "improper behaviour".

In a change from the previous draft Code which was published, the final Code includes an expectation (not a legal requirement) that employees will be accompanied at any pre-termination negotiations by a colleague or Trade Union representative. I suspect many employers will choose to ignore this and very often it may be more appropriate, in reality, to meet with an employee without the employee having a representative present. This is on the basis that the employee may well prefer that no-one else in the workplace is aware that they are being exited. In addition, they may well not want a fellow employee to be aware of the package being offered.

In addition, there is no longer a requirement in the Code for any initial termination settlement offer to be in writing although any final agreement must be in writing in order to be valid (see below).

The Code also states that the employee must be given a reasonable period of time to consider the proposed settlement agreement and indicates, as a general rule, that 10 calendar days should be allowed (unless the parties agree otherwise).

The legal position relating to the actual settlement agreement itself is the same as for compromise agreements. As such:-

  • the agreement must be in writing;
  • the agreement must relate to a "particular complaint" or "particular proceedings";
  • The employee must have received legal advice from a relevant independent adviser on the terms and effect of the proposed agreement and its effect on the employee's ability to pursue any rights before an employment tribunal;
  • The independent adviser must have a current contract of insurance, or professional indemnity insurance, covering the risk of a claim against them by the employee in respect of the advice;
  • The agreement must identify the adviser;
  • The agreement must state that the conditions regulating settlement agreements have been satisfied.

As these discussions will only remain inadmissible in ordinary unfair dismissal proceedings, they will continue to be potentially admissible in, for example, automatically unfair dismissal, breach of contract, or discrimination cases albeit the usual "without prejudice" rules will still apply. There are though important differences between the applicability of the new rules and the "without prejudice" rules. In particular, there must be a pre-existing dispute between the parties for a "without prejudice" conversation to be inadmissible.

The Government's aim is to encourage more employers to consider early dispute resolution without resorting to litigation, thereby reducing the cost to both employers and employees and reducing uncertainty. Whether these changes actually makes any difference in practice remains to be seen.