Draft Acas code on settlement agreements could lead to longer exit periods, says expert

Out-Law News | 14 Feb 2013 | 12:22 pm | 3 min. read

The strict conditions that must be met before employers will be protected from having discussions relating to settlement agreements used against them in a tribunal could lead to lengthier exit discussions than is currently the case, an expert has said.

Christopher Mordue of Pinsent Masons, the law firm behind Out-Law.com, was speaking as publicly-funded conciliation service Acas published draft guidance (23-page / 149KB PDF) on how new 'settlement agreements' will work in practice.

Settlement agreements are legally binding contracts which can be used to end an employment relationship on agreed terms. The Enterprise and Regulatory Reform Bill, which is currently before Parliament, will prevent any offers or discussions about settlement agreements from being used as evidence in an unfair dismissal claim unless either of the parties has engaged in "improper behaviour".

"Employers need to be aware that the regulatory burden under the code is fairly extensive," Mordue said. "The main situation in which protection is removed is where there is improper behaviour or undue pressure and the code suggests that even giving an employee less than seven working days to consider an offer would be undue pressure."

"Arguably this means every single offer, not just the initial proposal. In most discussions around compromise agreements, shorter deadlines would be issued – so the code could lead to lengthier exit discussions than is currently the case," he said.

"Another new area of regulation on exit negotiations contained in the draft is that the statutory right to be accompanied by a trade union representative or colleague would be extended to cover any meetings where settlement proposals are made or discussed. Failure to allow that could mean that the discussions can be referred to in any subsequent litigation. In practice, that is likely to mean that employers would often have to write to the employee initiating the settlement agreement discussions rather than commence these conversations face to face and actual meetings may be harder to arrange if the representative is unavailable. This is a practical issue which employers may wish to cover in their consultation responses," he said.

Other types of "improper behaviour" specified by the code include any form of harassment, regardless of whether this is discriminatory, and victimisation for invoking a statutory right, whistleblowing or trade union membership.

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.

The new code of practice will come into effect alongside the confidentiality provisions, which are currently expected by summer 2013..

Employment law expert Christopher Mordue said that one of the purposes of the draft Acas code was to address the difference between the existing 'without prejudice' rules and the new employer protections. 'Without prejudice' is a common law principle which prevents written or oral statements made in a genuine attempt to settle an existing dispute from being put before a court or tribunal as evidence. The new rules will apply to discussions around settlement agreements even when there is no existing dispute between the employer and employee and so no strict basis for any without prejudice discussions, he said.

"However, the draft Code also makes clear that this protection is both limited and cuts across the existing rules - employers have to be aware that this area is becoming more complex and to some extent more tightly regulated," Mordue said.

"The without prejudice rule already has exceptions which allow settlement discussions to be used as evidence of discriminatory behaviour or intent or unlawful harassment. The protections given by the without prejudice rules are further weakened by these reforms - even if the case is one of 'ordinary' unfair dismissal and there is an existing dispute between employer and employee, the effect of the employer breaching the code is that any without prejudice protection will be lost and the discussions and negotiations can be used in evidence," he said.

The fact that an employer had made a settlement offer could also be referred to in subsequent legal proceedings if the employee's dismissal was for an automatically unfair reason, he said. Discrimination, dismissal on grounds of pregnancy or because of whistleblowing are all automatically unfair reasons.

"Many tribunal claims are made on multiple grounds and so employers have to be aware that the tribunal may well consider evidence about the offer or comments made in negotiations," Mordue said.

"The message for employers is very clear and simple – assume that the conversation is unprotected and don't say anything in negotiations that you wouldn't be prepared to say and justify openly in tribunal. There is nothing in these rules which should prevent or dissuade employers from making exit offers and the majority of discussions will still result in a binding agreement. The point is really to approach these discussions in the right way so that even if protection is lost, the employer's position is not unnecessarily damaged," he said.

Acas is seeking feedback on the draft code of practice until 9 April 2013.