Knowledge

We help make your business a success

Confidential pre-termination negotiations and Settlement Agreements

Updated 2015.


Many employers, if a relationship with an employee is not 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.


Pre-termination negotiations


From 29th July 2013 a change to the Employment Rights Act 1996 will allow these ‘pre-termination negotiations’ to be kept confidential, which means they will not 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 will not 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 is not, an existing employment dispute, or where one or more of the parties is unaware that there is an employment problem. ‘Without Prejudice’ discusssions that existed before pre-termination negotations can only be held where there is 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 earlier 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 have:



Therefore 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.


Other examples of improper behaviour given in the ACAS Code (below) are harassment, physical assault or the threat of physical assault or any other criminal behaviour, victimisation, discrimination; and putting undue pressure on a party by not giving reasonable time for consideration of the agreement, or by the employer telling the employee they will be dismissed if they do not agree the settlement proposal or where an employee threatens to undermine an organisation’s public reputation if the employer does not sign the agreement, unless the provisions of the Public Interest Disclosure Act 1998 (Whistle-blowing) apply (this list is not exhaustive).


Such examples do not 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 is not 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. It is usual for the agreement also to contain a clause that the employer will provide an agreed reference for the Employee. They are 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” at the end of July.


The Code advises that employees should be accompanied at any pre-termination negotiation meetings by a colleague or Trade Union representative (although this is not a legal requirement). Employers may choose to ignore this as it is 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, saying a general rule is that 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 is is 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 it’s 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.


Settlement agreements are voluntary and parties do not have to agree to them or enter into 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 is not reached and 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.


And finally, the Code of Practice is statutory, but failure to follow it does not entitle an employee to bring a claim for this reason alone.


Other information:



  • Consultation will start 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 will be implemented by April 2016 and we’ll update this as we know more.

  • The Government have also started consultation, at the end of July 2015, on banning 6-figure ‘golden’ goodbyes to public sector workers and capping payments at £95,000. Consultation ends on 27th August 2015. In November 2015 draft Public Sector Exit Payment Regulations 2016 were published outlining the Government’s proposal. This is likely to be effective from October 2016 and will mean that the £95,000 threshold applies to the total amount of pay received by an individual, for loss of employment, and includes redundancy payments, voluntary exit payments and “any other payment made as a consequence of, in relation to, or conditional upon, loss of employment whether under a contract of employment or otherwise”, which would include Pay in Lieu of Notice but would exclude any outstanding holiday pay due.


  • Another Consultation launched in July 2015 is about proposed reforms to the way employee’s termination payments are taxed. The Office of Tax Simplification has concluded that the tax system applying to termination payments is confused and uncertain. The Government is proposing a system that is easier for employers to administer and easier for employees to understand – we will update this when we know more but you can read more details here .


For details of other Employment Law changes on 29th July 2013 relating to Employment Tribunals see our Guide here!


 


If you are an Employer and need ongoing professional help with any staff/freelance issue 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.

Our invoice templates are professional and sharp. Use them to directly invoice your clients and get paid fast.

From understanding expenses to starting a limited company, our downloadable business guides can help you.

If a client hasn't paid an invoice, download our late payment reminder templates and get that invoice paid fast.

The review also comes hot on the heels of our work with the RSA - the Entrepreneurial Audit proposed 20 policies to strengthen self-employment in the UK.

Deliveroo has indicated it’s prepared to provide riders with benefits, and has called for the creation of a new classification for gig economy workers.

Direct Earnings Attachment policy gives the Department for Work and Pensions the power to ask you to deduct money from an employee. What can you do?

The best accounting advice

Our accredited team are on hand to help you choose the best package

We understand that it can be difficult deciding whether or not to switch accountants, but at Crunch we’ll offer you fair, unbiased advice on what’s best for you.