Pre-termination negotiations: removing the risk from difficult conversations?

As part of the Government’s ongoing programme of employment law reform, the recently enacted Enterprise and Regulatory Reform Act 2013 introduces a range of measures aimed at encouraging the early settlement of workplace disputes without recourse to an employment tribunal.  One of the provisions under the Act, in force from 29 July 2013, is that evidence of settlement offers made by employers to an employee pre-termination will be inadmissible in a subsequent claim for unfair dismissal. 

This new provision is intended to circumvent the existing rules for “without prejudice” conversations, evidence of which are inadmissible in subsequent proceedings only if there is a pre-existing dispute with the employee.  The existence of such a dispute can be difficult to prove, and the risk of making an offer of settlement where no dispute exists is that the employee may resign and bring a claim for constructive unfair dismissal, using evidence of the discussion in support of their claim. 

Pre-termination negotiations

Under the new rules, employers will be able to put forward suggestions for the early termination of employment without any existing dispute with the employee, avoiding the need to follow a full procedure (such as a capability or disciplinary procedure), unless settlement terms cannot be agreed.  Such discussions will not generally be admissible as evidence in an ordinary claim for unfair dismissal. 

However, this exclusion does not apply in claims of unfair dismissal if the reason is one of the automatically unfair reasons (such as trade union membership or activities, related to health and safety or pregnancy and maternity).  The exclusion will also not apply to claims of discrimination, meaning that evidence of such discussions will be admissible in such claims.  

Settlement offers can be made either in writing or verbally and employees must be given a reasonable time to respond (Acas suggests a minimum period of 10 days).  The agreed terms must then be recorded in a “settlement agreement” (the new term for compromise agreements).  If the employer acts in a discriminatory or “improper” way when making an offer of settlement, evidence of the offer will become admissible in tribunal proceedings.

Code of Practice

Acas has issued a new statutory Code of Practice on Settlement Agreements, which  provides a brief explanation of the new law relating to settlement agreements, some basic guidance on reaching a settlement agreement and guidance on what would amount to “improper behaviour” on the part of the employer, resulting in evidence of the negotiations becoming admissible in evidence. 

To accompany the Code, there will also be non-statutory guidance, which is due to be published by Acas at the end of July.  The non-statutory guidance will include factors for both employers and employees to consider when negotiating a financial settlement, as well as template letters and a model settlement agreement.

Practical risks

Whilst these new rules may go some way to assist employers in holding difficult conversations with employees, removing the need in appropriate cases to follow, for example, a lengthy and time consuming performance-management process, there will be risks in attempting such a conversation in any situation where an allegation of discrimination may arise.  For example, if an individual’s poor performance is related to a disability, the individual may seek to use evidence of the conversation in a subsequent claim for disability discrimination.

It will also fall to the courts and tribunals to establish the tests for determining what amounts to “unreasonable behaviour” on the part of the employer, and the consequences of such behaviour. 

It is too early to predict whether the new provisions for “pre-termination negotiations” will be of any practical assistance in bringing the employment relationship to a mutually-agreed end.  In the meantime, employers should be cautious in entering into such negotiations without a proper assessment of the potential risks of doing so.

Employment law experts from Steeles Law will be examining this topic in more detail, together with other issues relating to the termination of employment, in the forthcoming HR Forum which is taking place at Dunston Hall on 11 September 2013, from 2pm.

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