Acas has published a non-statutory Guide to accompany the statutory Code on the new settlement discussion regime which came into effect on 29 July 2013. The new regime provides a degree of protection for discussions about possible termination of employment even where there is no “dispute” (such that without prejudice protection does not apply). Evidence of settlement discussions will not be admitted in an ordinary unfair dismissal claim, unless there is improper behaviour in which case the tribunal has a discretion to admit the evidence.

The Guide discusses how employers should make a settlement offer as well as the scope of the new protection and, in particular, what conduct amounts to “improper behaviour”. The Code sets out a non-exhaustive list of improper behaviour including criminal behaviour, various types of discrimination, and “putting undue pressure on a party”; the examples given of the latter are:

  • Not giving a reasonable period of time to consider an offer. As a general rule, a minimum of 10 calendar days should be allowed to consider the proposed formal written terms of a settlement agreement, unless the parties agrees otherwise. The Guide makes the point that this period may need to be longer for certain disabled employees (for example where arrangements must be made for a sign language interpreter to accompany the employee when taking independent legal advice). The Guide also notes that it could be undue pressure for an employer to reduce the amount of the offer progressively while the employee is considering it, although this may not be the case if an offer is reduced or withdrawn because of factors outside the employer’s control, such as a significant change in the employer’s financial position.
  • An employer saying before any form of disciplinary process has begun that if the offer is rejected the employee will be dismissed. (Presumably the same would apply if the statement occurs during discussions held part way through a disciplinary process.)
  • An employee threatening to undermine an organisation’s public reputation if the organisation doesn’t sign the agreement, unless whistleblowing protection applies.

The Code confirms that it will not be improper conduct for an employer to set out in a neutral manner the reasons that have led to the offer, or to factually state the likely alternatives if an agreement is not reached, including the possibility of disciplinary action which may lead to dismissal if relevant. The Guide adds further examples of conduct that would usually not be improper:

  • factually stating that if the offer is refused and the employee is subsequently dismissed, the terms of such a departure are likely to be less favourable
  • not using the template letters or model settlement agreement provided in the Guide
  • not agreeing to provide a reference
  • not paying for the employee’s independent advice
  • encouraging an employee, in a non-threatening way, to reconsider their refusal of the offer.

Other practical points highlighted by the Guide include:

  • It is usually helpful if the employer gives the employee a clear indication of why the offer is being made. Employers should also consider whether a settlement offer could appear ‘out of the blue’ and how this might affect an individual ‘s reaction to the offer and the ongoing relationship if an agreement is not reached.
  • There is a potential risk to employment relations in the wider workforce if settlement offers are used inappropriately or as a substitute for good management practices.
  • It is good practice to review use of settlement agreements periodically, to check if there is any unintended impact on employees with protected characteristics (for example, if they are used mainly for workers who have reached pensionable age), given that this could amount to unlawful discrimination. Line managers may need to be alerted to this risk.
  • Although employees do not have a statutory right to bring a companion to the settlement discussions, the Guide recommends that employers allow this as best practice, and in some cases it may be a reasonable adjustment for disabled employees. The employer can require the companion to respect the confidentiality of the discussions.

Employers should review their policies and precedent agreements in light of the new regime. It may be useful to add a provision to disciplinary and performance management policies referring to the new settlement discussion regime and making clear that the employee can also initiate the discussions and that any settlement discussions will have no bearing on any formal procedure followed subsequently.

The most common example where the new regime will apply is where an employer wants to initiate discussions as an alternative to, and before, starting a disciplinary or performance management process, but a recent case illustrates how the situation might also arise after a disciplinary process has ended.

The EAT ruled that a settlement offer made after a disciplinary hearing to consider dismissal, but before the employee was informed of the outcome, was covered by without prejudice protection. This was because the employee might reasonably have been contemplating litigation in the event of dismissal, so there was a ‘dispute’. But discussions after the employee had been told of the decision to issue a final written warning rather than dismiss were admissible in a subsequent unfair dismissal claim; the EAT considered that there was no potential dispute at that point. (The EAT apparently did not consider the potential for a claim based on the final warning).

The new regime would provide protection in such a situation. Of course, it is better to avoid making unhelpful admissions in the fist place, particularly before the settlement agreement is signed. (A v B&C)