Acas revises its draft Code of Practice on extended confidential settlement agreements

Out-Law News | 11 Jun 2013 | 9:04 am | 3 min. read

The rules governing when and how an employer will be able to use a confidential pre-termination settlement agreement to bring an employee contract to an end are more complicated than they first appear, an expert has said.

Selwyn Blyth of Pinsent Masons, the law firm behind Out-Law.com, was commenting as the publicly-funded conciliation service Acas published its finalised statutory guidance (18-page / 226KB PDF) on the new agreements. Legislation that will allow employers to enter into settlement agreements is expected to come into force this summer, and the new Acas Code of Practice will come into force at the same time.

"If you don't look at the detail of the Code of Practice, the new settlement agreements appear to give employers the go-ahead to have confidential chats with their employees ahead of a settlement, as long as they follow the correct procedures," Blyth said.

"However, there are so many areas on which a disgruntled employee could found a challenge – such as the difference between settlement agreements and the existing 'without prejudice' regime, and the expectation contained in the Acas guidance that an employee will be accompanied during any discussions - that there is considerable potential for satellite litigation. If this was to happen, the new regime seems contrary to the Government's drive to reduce regulatory burdens and reliance on the tribunal system for businesses," he said.

Settlement agreements are legally binding contracts which can be used to end an employment relationship on agreed terms. Once in force, section 111A of the Employment Rights Act will prevent any offers or discussions about settlement agreements from being used as evidence in an unfair dismissal claim providing that certain criteria are met.

Currently known as 'compromise agreements', settlement agreements are already available to employers in some circumstances. Once terms are agreed, an individual cannot make a claim to a court or employment tribunal on matters specifically covered in the agreement. In exchange, the employee will usually receive some form of payment or a reference from the employer. The Government announced that it would be taking steps to encourage the wider use of settlement agreements by employers in September 2012, including the introduction of the confidentiality provisions.

In order for a settlement to be legally valid, the guidance states that the final agreement must be in writing and relate to a "particular complaint or proceedings". The employee must have received advice on the terms and effect of the proposed agreement from a relevant independent adviser, who must be identified as part of the agreement.

Employees will not be prevented from bringing claims in relation to 'automatically unfair' dismissals, such as for whistleblowing, trade union membership or asserting a statutory right, by virtue of having entered into a settlement agreement. The confidentiality provisions will also not apply to grounds other than unfair dismissal, such as claims of discrimination, harassment, victimisation or claims relating to breach of contract.

The confidentiality provisions will also not apply where there is "improper behaviour" by one of the parties, in which case the tribunal will allow evidence to the extent that it considers it "just". The guidance provides a number of non-exhaustive examples of what could constitute improper behaviour by either an employer or employee. These include all forms of harassment, bullying and intimidation; physical assault or the physical assault; victimisation; discrimination; and putting undue pressure on a party, which can include not giving an employee sufficient time to consider an offer.

Acas published the first version of its draft Code of Practice for consultation in February. The revised version omits a requirement that an employer must put an initial settlement offer in writing; however, the final agreement will not be valid unless it is in writing. It also increases the length of time an employee should be given to consider any offer from seven to 10 days, and adds an expectation that employees should be allowed to be accompanied at meetings by a colleague or trade union representative.

Blyth said that employers had to be careful not to confuse the new confidentiality provisions with the existing 'without prejudice' rules. Without prejudice is a common law principle which prevents written or oral statement made in a genuine attempt to settle an existing dispute from being put before a court or tribunal as evidence. The circumstances in which without prejudice can apply are broader than those where the new confidentiality agreements can apply; however, they will only take effect where there is an existing dispute between the employer and employee.

The guidance makes it clear that the without prejudice and settlement agreement regimes "run alongside" each other. Where there is an existing dispute between the employer and employee, both the 'without prejudice' and new statutory confidentiality provisions will apply. In these circumstances, negotiations ahead of a settlement agreement will not be admissible unless there has been some 'unambiguous impropriety' by one of the parties, which is a narrower test than that of 'improper behaviour'.