From 29 July 2013, employers and employees will be entitled to keep confidential certain negotiations which they have between them regarding termination of their employment. This means that an offer of settlement and any negotiations cannot be used as evidence in any subsequent unfair dismissal claim.

Key features are:

  • Any offer of settlement need not be in writing for the parties to be entitled to claim confidentiality
  • The offer can be made by the employer or the employee
  • The offer and negotiations are only confidential in general unfair dismissal claims: claims for automatic unfair dismissal such as for whistleblowing; breach of contract or discrimination claims are excluded
  • If either party is found to have behaved improperly (see below for what this means), the tribunal may decide to hear evidence of the negotiations
  • The offer of settlement can be made “subject to costs” so that it won’t be confidential when the tribunal determines costs or expenses in any subsequent claim

The purpose of the new provisions

Currently, where there is an existing employment dispute, an employer and employee are able to enter into discussions regarding settlement of that dispute on a “without prejudice” basis. This means that any statements made in a without prejudice discussion, which are made in a genuine attempt to resolve an existing dispute, are prevented from being put before a court or tribunal as evidence. The “without prejudice” rule does not apply where there has been particularly bad behaviour such as fraud, perjury or blackmail.

The “without prejudice” rule only applies where there is an existing dispute. However, in practice, many employers make settlement offers prior to termination of employment under the cloak of the “without prejudice” rule where no dispute exists. In most cases, there is a favourable outcome and tribunal proceedings are avoided. However, where a settlement is not achieved, the “without prejudice” cloak is challenged and the settlement offer can be produced in evidence in a subsequent claim.

The new confidentiality rule is designed to give employers more freedom to make settlement offers in this situation without fear that their offer would be admissible in any future proceedings. The hope is that this would encourage the parties to enter into a settlement agreement to resolve disputes without having to resort to tribunal proceedings. Although Parliament is clear that the idea is not to allow employers to put unreasonable pressure on employees to agree a settlement, it is obvious that the new confidentiality rule is intended to enable employers to make an offer of settlement “where there is a problem” eg where there is misconduct or underperformance.

The improper behaviour exception

In any subsequent tribunal proceedings for unfair dismissal, the employment tribunal has the power to order that evidence of confidential pre-termination negotiations are brought before it in cases where anything was said or done which, in the tribunal’s opinion, was improper, or was connected with improper behaviour.

The Acas Code gives some guidance on this and states that “improper behaviour”:

  • is for the tribunal to decide depending on the case
  • would include fraud or some other bad behaviour such as perjury or blackmail
  • also includes behaviour which involves:
  • harassment, bullying, intimidation
  • physical assault
  • discrimination
  • putting undue pressure on the party eg
    • not giving the other party a reasonable time to consider the offer (the Acas Code suggests a minimum of 10 calendar days)
    • indicating that if the offer is rejected dismissal is inevitable
    • an employee threatening to undermine an organisation’s public reputation if the settlement agreement is not signed

What does the Acas Code say about how the offer should be made?

The Acas Code provides that:

  • an offer can set out in a neutral manner the reasons that have led to the proposed settlement agreement
  • an offer can factually state the likely alternatives if an agreement is not reached, eg starting a disciplinary process which could end up with dismissal
  • the party to whom the offer is made should be given at least 10 calendar days to consider the offer so that they can obtain legal advice
  • an employee should be offered the chance to bring a trade union representative or work colleague to any meeting to discuss the offer

What difference will there be in practice?

Employers are most likely to use the new confidentiality rule to circumvent disciplinary, capability and potentially redundancy procedures. A word of caution though! The first crucial limitation to these new rules is that they only apply to standard unfair dismissal claims. Therefore, where there are any possible issues involving whistleblowing, trade unions, discrimination (eg age, disability) etc, it would be unwise to rely on them.

Another possible risk is a claim for breach of contract. An employee might be so upset by the offer or its terms that he resigns and claims wrongful dismissal, arguing a breakdown of trust and confidence. A technical breach of contract won’t be particularly significant in so far as junior employees are concerned. Where, however, the employer wishes to rely on post termination restrictive covenants (such as non-poaching or confidentiality clauses) the consequences could be severe since these would be unenforceable in the event of a fundamental breach by the employer.

Finally, the improper behaviour exception is a bit of an unknown at present. With such a wide discretion on tribunals to determine the effect it has, the lack of statutory definition and the inexhaustive list of examples in the Acas Code, there is the potential for Tribunals to interpret this in such a way that renders this new development practically risky, which will mean that employers just won’t use it. We will have to wait and see what position the Tribunals take. In the meantime, however, we believe that in straightforward dismissals this will be a useful mechanism for exiting employees in an efficient manner.

Guidance on pre-termination settlement offers is contained in a new Acas Code on Settlement Agreements. Further guidance can be found in the Acas booklet “Settlement Agreements: A guide”, which is due to be published soon.