Acas, the conciliation and advisory service, has recently launched its consultation on the new Code of Practice on settlement agreements.
It is the Government’s intention that settlement agreements will replace the existing compromise agreements. The Government has elected to change the name in such a way as they believe “settlement agreements” more accurately describes the purpose and content of the document.
Like compromise agreements, settlement agreements will be legally binding contracts which will be used to end the employment relationship on agreed terms. They will waive an individual’s right to make a claim to a Court or Employment Tribunal on the matters that are specifically covered in the agreement and will usually include some form of payment to the employee. They are therefore, in effect, identical to the current compromise agreement used by so many employers these days
Subject to Parliamentary approval, the Government will also introduce a new law that will mean that offers of settlement cannot be used as evidence in Employment Tribunals in unfair dismissal cases, so long as there has been no improper behaviour in the process of discussing the agreement. The new law will mean that negotiations relating to, or offers of, settlement will not be admissible in Tribunal claims relating to unfair dismissal, regardless of whether there is an employment dispute between the parties or not.
To support the new unfair dismissal rules in relation to settlement agreements, the Government has indicated that a statutory Code of Practice will be produced setting out the broad principles covering the use of settlement agreements.
Such a Code of Practice will not be legally binding but is intended to provide employers and employees with a shared understanding of how the new rules and settlement agreements would work in practice and define what is meant by improper behaviour.
Annexed to the Code are a series of template letters for employers to use in such a situation where the possibility of a settlement agreement arises. Such an action has divided opinion – those in favour say that their use will give employers as much certainty as possible that they are making an offer in an appropriate way, whilst those against suggest that such templates cannot cover all of the possible circumstances in which case such a letter will therefore require amendment to fit individual situations.
The Code also suggests some safeguards for employees, such as allowing a minimum period of 7 working days for consideration of the settlement agreement and Acas have also suggested that employees should be allowed to be accompanied at meetings to discuss settlement agreements.
What will constitute “improper behaviour” is an important consideration as the Code at present states that the protection afforded above will not apply where there has been fraud, undue influence or some other “unambiguous impropriety” (such as discrimination). What constitutes such improper behaviour will ultimately be for a Tribunal to decide on the facts and circumstances of each case but Acas have suggested some examples of improper behaviour, such as harassment, criminal or wrongful behaviour, victimisation, discrimination and putting undue pressure on the other party.
If a settlement agreement cannot be reached for any reason then the same process as currently applies will remain; some other form of dispute resolution should be sought, perhaps through a disciplinary, grievance or performance management process if appropriate. If such a process does need to be invoked, it is important for employers to remember that they must still follow a fair process so as to negate any claims for unfair dismissal.