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Pre-termination settlement negotiations: good, bad or indifferent? Six months on, are we any clearer?

Talking to clients the other day, I was asked whether I thought the introduction of this provision has actually made much (or any) difference in practice to the way employers go about parting company with employees.  For those who haven't encountered this niftily-named 'invisibility cloak' for certain qualifying conversations, here's a brief summary:-

  • In July 2013, a new s111A was introduced into the Employment Rights Act 1996 with the effect of preventing a tribunal from taking into account 'pre-termination negotiations (ie, discussions of settlement pre-dismissal) when considering claims of ordinary unfair dismissal. 
  • Protection is lost in the event of improper behaviour, and does not in any event apply to automatic unfair dismissal claims or other claims such as discrimination etc;
  • Such claims may still be covered by the without prejudice rule, under which communications between employer and employee which reflect a genuine attempt to resolve differences will not be admissible in proceedings.  However, the major shortcoming of that rule from an employer's point of view is that it only kicks in when there is an existing dispute between the parties.  So, s111A, when it applies, has the benefit of extending that rule to situations where no formal dispute yet exists.
  • There is an ACAS Code of Practice on Settlement Agreements [see] and accompanying non-statutory Guide, which also contains template letters and model agreements.


So far so good – but how has all that translated into practice?

Having initially been sceptical, I've found the new regime to be cautiously helpful, albeit limited to very specific situations.  Plainly, it won't and shouldn't replace the need to adopt good and proper management procedures in addressing performance and conduct issues, or risk undermining morale.  But in situations where you want to have the age-old fork in the road conversation without having the comfort of a pre-existing dispute to wrap the without prejudice rule around the discussion, the new rules can be an additional weapon in the employer's arsenal. 

And indeed, the employee's arsenal too – slightly to my surprise, I've seen several individuals use this approach with generally effective results. In one case, an employee saw the writing on the wall early on in a potential redundancy situation, initiated a conversation under the new rules and negotiated an enhanced departure package in return for the (grateful) employer not having to go through full selection and consultation.  The benefit to the employee was knowing that if the conversation didn't go her way, it couldn't be relied on in any subsequent claim were she made compulsorily redundant.  In other cases, I've had employers worried about how to deal with that nebulous but oh-so-familiar 'not doing badly enough to performance manage but just not quite right for the role: its very hard to explain' situation who have been approached by the employee in question with astonishingly effective results (relief may have played something of a part in the settlement figures there).


So – my good things, bad things and jury's-out things about the regime:-

  • The idea that the first an employee knows about it is a letter along the lines of one of the models in the ACAS Guide is baffling.  ACAS do of course acknowledge that it is better and more usual to meet with the employee first, but it's hard to see how a hearts and minds exercise can hope to succeed if the first approach is a stiff letter screaming  'pre-termination' and scattering section numbers around.  I can't see any way that this is anything other than a bad thing.
  • Lack of clarity as to whether or not the conversation genuinely will fall within the stated protection – or whether issues will be raised (most usually discrimination) which mean that protection is lost.  Because of this, safest to use in very clear and relatively limited circumstances (including one-off redundancies) where the likely claims are very, very obvious and you're as sure as you can be that there is nothing lurking under the surface.  Overall, for me: bad thing.
  • We don't yet know quite how the 'improper behaviour' caveat will pan out.  This basically means that the protection won't apply where the tribunal feels anything said or done in the negotiation was improper.  If so, it will only remain confidential to the extent that the tribunal feels just.  All kinds of issues arise here over the extent to which the evidence will therefore need to be heard so that the tribunal can determine impropriety, as well as the scope for what constitutes improper behaviour itself to be a source of litigation. It clearly covers, but is a wider concept than 'unambiguous impropriety' under the without prejudice rule, running also (in a non-exhaustive list) to 'putting undue pressure on a party'.  This is likely to be fertile ground for dispute, notwithstanding the relatively helpful commentary in the Code – so, jury's out.
  • The Code suggests that as a matter of good practice, employees should be given the opportunity to be accompanied at a settlement meeting.  Failure to do so could be unlawful discrimination and could potentially also amount to improper behaviour, though this is not fully clear.  Instinctively, I find the idea of a tripartite conversation fundamentally changes the dynamic of a very delicate discussion and I do find it hard to see how it will work in practice.  Some clients have tried it with real success, but for me, the jury's still out on that one;
  • But on the upside, where an employer is pretty clear on its reasons for dismissal and on a one-off basis has thought through and rejected the idea of following procedure, where there's no existing dispute, and no complex background circumstances which might give pause for thought about additional claims, then I'm gradually being persuaded that there is real scope to see this as a good thing.  In moderation.

And if you do reach a deal, the fact that it is to be recorded in a nicely rebranded settlement agreement rather than a compromise agreement is still not something that I'm finding easy to internalise.

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