Confidential pre-termination negotiations and Settlement Agreements. Image of people discussing contract terms

Many employers, if a relationship with an employee isn’t going well, for whatever reason, may consider ending that relationship and will hope to start a conversation with an employee to end their employment by mutual agreement (which usually comes with an appropriate sum of money as compensation), rather than pursue a dismissal in other ways.

This article only applies to employees/employers in England, Wales and Scotland - it has not yet been implemented in Northern Ireland.

Pre-termination negotiations

From 29th July 2013, a change to the Employment Rights Act 1996 allows these ‘pre-termination negotiations’ to be kept confidential, which means they won’t be able to be used as evidence in unfair dismissal claims at an Employment Tribunal unless there has been ‘improper behaviour’ (they can be used as evidence in circumstances of a discrimination claim or a breach of contract claim, for example). Employees won’t be able to use the discussions as evidence, for example, that he or she was constructively dismissed from their job.

Such negotiations can happen whether there is, or isn’t, an existing employment dispute, or where one or more of the parties is unaware that there’s an employment problem. ‘Without Prejudice’ discussions that existed before pre-termination negotiations can only be held where there’s an existing dispute between the parties – read more details about Without Prejudice here.

Employees can also propose to their employer that they start a pre-termination negotiation, although this will be unusual (the government have previously called these negotiations ‘protected conversations’).

Pre-termination negotiations are defined as “any offer made or discussions held, before the termination of the employment in question, with a view to it being terminated on terms agreed between the employer and the employee”.

This change will allow employers to hold discussions with an Employee about ending their employment and reaching a ‘Settlement Agreement’. Prior to 29th July 2013 Settlement Agreements were called Compromise Agreements.

Pre-termination discussions are not protected if the employee has been dismissed for an automatically unfair reason. For example, asserting their right to:

Or if they’ve:

In these circumstances, an employee can use the contents of such discussions as evidence to support their claim.

In addition, if a Tribunal is of the opinion that the employer or employee said or did something wrong, the contents of the discussion will only be protected to the extent that the tribunal considers ‘just’. For example, if a Tribunal believes the employers or employees behaviour amounts to bullying or intimidation, the Tribunal can decide that the employee/employer can rely on this evidence.

The following list, although not exhaustive, are a few examples of improper behaviour as defined in the ACAS Code:

  • Harassment
  • Physical assault/the threat of physical assault
  • Victimisation/discrimination
  • Placing undue pressure on a party by not giving them reasonable time to consider an agreement
  • Threatening the employee with dismissal if they fail to agree to the proposal
  • Where an employee threatens to undermine an organisation’s public reputation if they fail to sign an agreement (unless the Public Interest Disclosure Act 1998 [whistleblowing] applies)
  • Any other criminal activity.

Such examples don’ prevent one party setting out in a neutral manner the reasons that have led to the proposed settlement agreement, or factually stating the likely alternatives if an agreement isn’t reached, including the possibility of starting a disciplinary process if relevant.

Settlement Agreements

Compromise, now called Settlement Agreements, are used to end an employee’s employment, usually with a compensation payment in return for the employee agreeing not to bring Tribunal or court claims about the issues covered in the agreement. Usually, the agreement also contains a clause that the employer will provide an agreed reference for the employee. They’re usually confidential and should say when the employment will end (with the required notice, or other timing can be agreed). Details of payment and the timing should be included in the agreement.

ACAS have produced a Code of Practice on Settlement Agreements, which is here, and will publish "Settlement Agreements: A Guide”, available on the same page.

The Code advises that employees should be accompanied at any pre-termination negotiation meetings by a colleague or Trade Union representative (although this isn’t a legal requirement). Employers may choose to ignore this as it’s often more appropriate, for both parties, to have such confidential conversations alone.

The Code says that it may be helpful for the reasons for the proposal to be given when the proposal is made.

The Code requires that final agreements be in writing in order to be valid and that an employer must give a reasonable period of time for the employee to consider the proposed agreement, suggesting a minimum of 10 calendar days should be allowed (unless both parties agree otherwise) for the employee to consider the agreement and receive independent advice on its contents (see below).

For the Settlement Agreement to be legal:

  • It must be in writing
  • It must relate to a ‘particular complaint’ or ‘particular proceedings’ (i.e. the agreement must state the claims that it’s intended to cover, e.g. unfair dismissal)
  • The employee must have received independent legal advice on the terms, and the effect, of the proposed agreement and its effect on the employee’s ability to pursue any employment rights later at an Employment Tribunal
  • The Legal 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 that advice. The adviser must be identified in the agreement
  • The agreement must state that the conditions regulating settlement agreements have been satisfied
  • In February 2020 Acas published a guide on Non-Disclosure Agreements (which are often present in Settlement Agreements, and you can read the guide on the Acas website.

Settlement agreements are voluntary, and parties don’t have to agree to them or enter into a discussion about them. There can be a process of negotiation during which both sides make proposals and counter proposals until an agreement is reached or both parties decide no agreement can be reached.

If a settlement agreement isn’t reached, depending on the nature of the dispute or problem, resolution may be pursued through a performance management, disciplinary or grievance process, or mediation - whichever is the most appropriate.

Finally, the Code of Practice is statutory, but failure to follow it doesn’t entitle an employee to bring a claim for this reason alone.

Other information:

  • Consultation started in 2015 to enable public bodies to recover redundancy and other exit payments from highly paid employees who return to work in the same part of the public sector within a short period of leaving. The measures were implemented in April 2016
  • The government also consulted at the end of July 2015, on banning six-figure ‘golden goodbyes’ to public sector workers and capping payments at £95,000. In November 2015, draft Public Sector Exit Payment Regulations 2016 were published outlining the government’s proposal. As of January 2020, these changes have still not been implemented.
  • Another consultation launched in July 2015 is about proposed reforms to the way employee’s termination payments are taxed. The resulting Finance Bills in 2017 and 2018 make the following changes: Termination payments (that benefit from a tax and national insurance exemption up to £30,000), will be subject to income tax and Employer Class 1 National Insurance contributions (at 13.8%) on amounts over £30,000. Employee National Insurance contributions will not need to be paid over £30,000. Termination payments above £30,000 will now become subject to employers’ NIC’s from 6th April 2020.

If you are an Employer and need ongoing professional help with any staff/freelance issues then talk to Lesley at The HR Kiosk - a Human Resources Consultancy for small businesses – our fees are low to reflect the pressures on small businesses and you can hire us for as much time as you need.

Please note that the advice given on this website and by our Advisors is guidance only and cannot be taken as an authoritative or current interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.

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Lesley Furber
HR Consultant
Updated on
May 13, 2020

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