The scenario is a simple one that frequently arises. Rather than start a long and drawn out capability process or conduct process, an employer instead wants to terminate an employee’s employment on mutually agreed terms. What could possibly go wrong?

Well, actually quite a lot. One conversation could undermine a whole dismissal process and could be referred to by the employee in any subsequent Tribunal claim, meaning any defence of that claim is likely to fail. So, how can an employer protect their position in these circumstances? Sometimes it genuinely suits both parties to agree an exit on mutually agreed terms but an employer must be in the best position to protect itself should those negotiations break down for whatever reason.

There are two potential protections available to an employer:-

  • The “without prejudice” principle; and
  • The statutory concept of “pre termination negotiations” (otherwise known as a “protected conversation”).

The without prejudice principle will generally prevent statements that are made in a genuine attempt to settle an existing dispute from being put before the court or tribunal as evidence. However, this can present real difficulties. The employer may prefer to have an exploratory conversation about options, including potential exits, long before anything as concrete as a dispute has arisen. This will certainly be the case where an employer wants to avoid initiating a capability process and therefore the first the employee knows about this is when the employer wants to discuss an exit package. Even if the employer labels a conversation as “without prejudice”, unless there is an existing dispute and this conversation is a genuine attempt to resolve that dispute, then the employer will not be protected.

When will there be an existing dispute? It is difficult to attach a precise meaning to the phrase and the following examples from case law confirm that each case will turn on its own facts:-

  • A grievance does not necessarily mean that there is a dispute;
  • The parties were "in dispute" when a school suspended one of its teachers, following potentially "career-ending" allegations of impropriety with pupils; and
  • Negotiations which continue, for example, after a final written warning has been issued may not be covered by the without prejudice rule since, by that stage, there was no immediate prospect of unfair dismissal proceedings.

The above examples show how finely balanced it can be as to whether or not an employer can rely on the without prejudice principle. It is also unlikely to assist in many cases where an employer wishes to start settlement negotiations at an early stage (where there is unlikely to be a dispute) rather than go through (or even start) a formal process.

This has been a longstanding problem and, in response, the government introduced the concept of "pre-termination negotiations". This framework was intended to make it easier for employers to initiate settlement conversations with employees with less risk of those conversations being admissible in subsequent tribunal proceedings. However, there are a number of limits on when this framework can be relied upon by an employer. In summary, the general framework for pre termination negotiations are as follows:-

  • "Pre-termination negotiations" may be protected from admissibility in unfair dismissal proceedings unless there has been "improper behaviour";
  • “Improper behaviour” by the employer can include harassment and bullying, for example, but can also include putting undue pressure on the employee in relation to:-
    • Not providing the employee with a reasonable time to consider the offer (the ACAS Code suggests at least 10 days should be provided);
    • The employer telling the employee that, if they do not agree to the settlement, they will be dismissed (although a neutral comment that a formal process will be commenced is unlikely to amount to improper behaviour);
  • Unlike the without prejudice rule, there is no need for the parties to be in dispute in order for this rule to apply; and
  • The protection only applies in ordinary unfair dismissal cases. This means the fact and content of these discussions can be referred to by the employee in all other cases (including discrimination, breach of contract, unlawful detriment etc), unless the without prejudice rule can be relied upon.

In Faithorn Farrell Timms LLP v Bailey, the EAT has recently given the first appellate guidance on the scope of pre termination negotiations and held that protection from admissibility includes the very fact that pre-termination negotiations have taken place, not just the details of those negotiations.


There are many factors involved in when and how an exit can be best negotiated but if employers wish to make the first move in an exit negotiation, then they should proceed with caution ensuring that either the without prejudice rule or pre termination negotiation framework applies or it may have to live with the consequences of that conversation being unprotected in any subsequent proceedings.