Compromise agreements have been renamed settlement agreements and ‘off the record’ settlement discussions, which take place before any dispute has arisen, may now be protected from being referred to in subsequent court proceedings.
As we roll into winter, the after-effects of the summer’s changes to employment laws are starting to have impact.
The changes took effect on 25 July 2013. The first change is seemingly pointless: ‘compromise agreements’ have been legally renamed ‘settlement agreements’.
The second change is more interesting. As we explained in an article earlier this year employers may now seek to try to end an employment relationship on a consensual and mutually agreeable basis through the use of a settlement agreement without being exposed to the risk of those discussions being subsequently referred to in court proceedings if agreement is not reached.
Both parties can now initiate settlement discussions even when there is no dispute between them. ‘Without prejudice’ discussions (discussions which should not be referred to in litigation) require there to be an existing dispute between the parties for the negotiations to be ‘off the record’. They do not apply to discussions where, for example, the relationship is not working but had not escalated to a full-blown dispute. Extending with ‘without prejudice’ to ‘off the record’ settlement discussions with employees could be far-reaching.
The legislation is brief. It only covers ordinary unfair dismissal claims. In addition, to prevent the discussions being referred to in any subsequent court proceedings (in the event negotiations break down and an unfair dismissal claim is brought), the law requires both parties not to have behaved “improperly”.
The public body ACAS has produced a short statutory code of practice (“the Code”) for the Employment Tribunal to take in to account when considering if the “off the record” settlement discussions should or should not be referenced in the litigation proceedings. ACAS has also published a detailed Guide to settlement agreements to support the Code.
The Code provides a non-exhaustive list of what is to be regarded as ‘improper behaviour’. It is important to understand this term as the settlement discussion loses protection if this has happened. It expressly includes harassment, bullying, use of offensive words, actual or threatened physical assault and unlawful discrimination. More surprisingly it includes a failure to provide the other party with a reasonable period of time to consider the proposed formal written terms of settlement ; the minimum period is stated to be 10 working days unless the parties agree otherwise. Should the employee make a threat to undermine the employer’s reputation if the agreement is not signed then this will also constitute improper behaviour.
There is no legal right for the employee to be accompanied at the settlement discussions but the Code suggests it would be good practice to do so which puts employers in something of a quandary.
Unlike the ACAS code for discipline and grievance, failure to follow the Code will not result in an increase or decrease to any financial sums awarded to the employee by the tribunal although it is unclear why this is the case.
The guide does not have any statutory effect and therefore does not need to be followed by the parties if they do not wish to do so. It does however provide practical and detailed advice for the parties on how to reach settlement agreements, a template settlement agreement and template letters to the employee.
Until we have guidance from the courts, it remains unclear what other factors might be considered ‘improper behaviour’ during the settlement discussions. For example, actions such as suspending someone on full pay, stating that the offer is non-negotiable or refusing to settle one of a multiple claims unless all parties settle together may or may not be considered to be improper behaviour.
Employees may be more likely to allege they have been bullied or argue that the reason for the settlement discussion arose from unlawful discrimination – such allegations could result in the Employment Tribunal determining that the discussions should be referenced in court proceedings as they were ‘improper’. When a party argues this position, the Employment Tribunal will need to hold additional and separate hearings to consider the point which will inevitably result in increased costs and time management for both parties.
In the occasional straightforward unfair dismissal case where, for example, the employer considers the employee is unhappy and may welcome a separation or where personality conflicts are proving difficult to resolve, the new laws may prove to be sensible and helpful. Employers should however take great care to ensure that the provisions of the Code are followed and no unfair pressure is placed on the employee to agree a settlement agreement.
ACAS Code of Practice on settlement agreements
ACAS Guide on settlement agreements
ACAS Code of Practice on Disciplinary and Grievance Procedures
For further information or to discuss the issues raised, please get in touch.
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