17 July 2013

The government has announced that the following reforms under the Enterprise and Regulatory Reform Act 2013 will come into force on 29 July 2013:

Confidential pre-termination negotiations

  • In certain circumstances, discussions or offers made between an employer and an employee with a view to terminating employment on agreed terms will be inadmissible in an unfair dismissal claim.

Settlement agreements

  • Compromise agreements will be renamed 'settlement agreements'.
  • To assist with the implementation of these reforms, ACAS has produced a new statutory Code of Practice on Settlement Agreements, which will also come into force on 29 July 2013.

The intention of the reforms is to extend the current 'without prejudice' principle, which applies to settlement discussions where there is an existing dispute, to allow employers to propose settlement terms to an employee without the risk of a constructive unfair dismissal claim. These reforms take the place of the previous proposals by the government for protected conversations and no fault dismissals, which have now been abandoned.

However, the pre-termination negotiations will only be inadmissible as evidence in an unfair dismissal claim. Importantly, the protection will not apply to:

  • automatic unfair dismissal claims (e.g. claims relating to whistleblowing or TUPE)
  • breach of contract or discrimination claims
  • circumstances where there has been 'improper behaviour' by either party.

The ACAS Code of Practice on Settlement Agreements gives examples of what will constitute 'improper behaviour' which include harassment, bullying and intimidation, physical assault or the threat of physical assault and other criminal behaviour, all forms of victimisation, discrimination and putting undue pressure on a party to accept an offer.

The Code suggests that allowing the employee to be accompanied at a negotiation meeting is good practice and may help to progress settlement discussions. The Code also sets down a general rule that a minimum of ten calendar days should be allowed for the employee to consider the proposed formal written terms of a settlement agreement and to receive independent legal advice. As it is a statutory Code of Practice, employment tribunals can take the Code into account when considering a claim.

In view of the very specific circumstances to which the protection applies, employers should continue to exercise caution in their approach to potential dismissals and ensure that any settlement discussions are planned and handled carefully.

If you would like more information, or specific advice, please contact Roger Bull.

Key contact

Roger Bull

Roger Bull Managing Partner

  • Managing Partner 
  • Employment Disputes
  • Strategic HR Projects

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