- July 8, 2014
- Posted by: admin
- Category: Autum Winter 2013 Newsletters
The Law in More Detail
Confidential negotiations and settlement agreements: Compromise agreements (s.203 Employment Rights Act 1996) have been renamed ‘settlement agreements” The effect of this is to prevent a tribunal, when considering the fairness of a dismissal, from taking into account any offer or discussion of settlement made before the termination of the employment in question, with a view to it being terminated on terms agreed between the employer and the employee. In other words, this would allow an employer to raise a performance or capability issue with any employee and propose ending employment on negotiated terms without fear that the employee will use their offer as evidence that it was determined to dismiss, regardless of procedural obligations.
Other key points:
- Settlement Agreements only apply to unfair dismissal claims, not discrimination or automatically unfair dismissals (such as Whistleblowing).
- Either party may propose a settlement. It can be started with a verbal offer, but must then be confirmed in writing.
- The reason for being offered a settlement should be clear. Final settlement offers should be made in writing and set out clearly what is being offered, such as a set amount of money and an agreed reference, as well as what the next steps are if the individual chooses not to accept the offer.
- It is not necessary for an employer to have followed any particular procedure prior to offering settlement.
- If an employer handles a settlement in the wrong way, i.e. not as explained in the code (referred to as “improper behaviour”) there is a risk that this will give rise to a breach of the implied term of trust and confidence and allow the employee to resign and claim constructive dismissal. Content of the discussion will then be admissible as evidence in any subsequent tribunal. Any form of duress, bullying or harassment is likely to constitute improper behaviour.
- Where an individual refuses settlement, the employer must go through a fair process before deciding whether to terminate the relationship.
- Individuals should be given a clear, reasonable period of time to respond – a minimum of 10 working days to obtain independent legal advice – which is a requirement of the Code.
- As closely as possible, the approach should reflect current practice in ‘without prejudice” negotiations.
- ACAS has produced a statutory code of practice to accompany these provisions. The offer of settlement cannot be used as evidence in employment tribunals in unfair dismissal cases, provided there has been no improper behaviour in the process of discussing the agreement.
- The code sets out some examples of what might constitute ‘improper behaviour” and undue pressure on the Employee would usually result in the removal of legal protection surrounding the settlement offer, e.g., intimidation or reducing a financial offer during the ten working days in which the employee can consider the offer.
- It is not a statutory right to be accompanied at these meetings. However the ACAS guidance recommends that employees should be allowed to be accompanied at a meeting to discuss settlement agreements. Accompaniment by a work colleague, trade union official or trade union representative would be reasonable.
- Template letters are available either in the non-statutory guidance (which complement the code). See below for an example.
Optional ACAS template letter to initiate settlement discussions under section 111A of the Employment Rights Act 1996
(this letter applies where there has been no previous performance management or disciplinary action)
Dear [ ]
Your employment: Confidential settlement proposal
We are writing to you because [as we discussed on insert date of previous discussion if applicable,] we have had some concerns about your conduct/ attendance/performance [delete as appropriate, and specify sufficient detail about the concerns to allow the employee to make an informed decision about his/her options].
We consider that, in these circumstances, one option is to offer you a settlement agreement to bring our employment relationship to an end, and we invite you to consider the proposal set out below.
If we are unable to reach such an agreement, then you should be aware that [delete as appropriate]
[we will next investigate these concerns further in accordance with our disciplinary procedure and then decide whether it may be appropriate to convene a disciplinary meeting [insert brief details of where the employee can reasonably access the written disciplinary procedure].]
[we will address our concerns about your performance [in accordance with our performance management procedure] and you will be encouraged and supported to improve your performance before we decide whether it may be appropriate to convene a disciplinary meeting [insert brief details of where the employee can reasonably access the written disciplinary procedure and, if appropriate, performance management procedure].]
You should note that there is no obligation for you to enter into discussions with us in relation to this proposal. Whether you choose to do so or not, please also note that any response to this letter, and any correspondence or discussions which may follow, will have no bearing on any later disciplinary [or performance management] procedure or subsequent decision taken by us, in the event that we are unable to reach an agreement.
The terms we would like to offer you are as follows [delete terms, or add further terms, as appropriate]:
[You would receive:
[- a [lump sum] payment of [£x], free of tax and NI[up to £30,000]] [providing further details of how the proposed sum has been arrived at may help the employee make an informed consideration of the proposal]
[- payment of [£x] for outstanding holiday entitlements, subject to tax and NI]]
[Your employment would end on [insert date which must take into account the employee’s statutory or contractual notice period, or include details of payment in lieu of notice if that is permitted by the employment contract].]
[You would agree not to bring a claim [or claims] of [refer to claim(s) that it is proposed to settle, eg unfair dismissal] to an employment tribunal.]
[You would receive an agreed reference covering your period of employment with us.]
[Add if appropriate: If you wish us to arrange a meeting with you to discuss this proposal and the terms of the offer then we will do so [insert details of contact person and method of contact]]. [Add if appropriate: You may be accompanied by a work colleague, trade union official or trade union representative at any such meeting.]
This offer is made subject to final agreement of full terms, and it is open for you to consider until [insert time] on [insert date, which must be reasonable taking account of the particular circumstances].
If you do wish to accept this offer we will draw up a formal agreement in writing. The law provides that you would need to obtain independent advice on the terms and effect of the proposed agreement before signing it.
SETTLEMENT AGREEMENTS: THE ACAS GUIDE
It is our intention that this letter will be covered by section 111A of the Employment Rights Act 1996. This means that the offer we are making and any subsequent discussion about it may not be admissible as evidence in any subsequent unfair dismissal claim. Further information on the provisions of section 111A and details on who may act as your independent adviser can be found in the Acas Code of Practice on Settlement Agreements, and associated guidance, which can be accessed at www.acas.org.uk.
Derek Eccleston MA FCIPD
Derek is Managing Director of Employment Law Training Limited, and regularly presents, writes and provides consultancy advice on employment law issues. ELT is a leading provider of specialist training and consultancy, covering all aspects of Employment Law.