Settlement Agreements

New legislation enabling confidential pre-termination Settlement Agreements is expected to come into force this summer. ACAS has produced a draft Code of Practice on Settlement Agreements which contains some useful guidance. 

Settlement Agreements are legally binding contracts which can be used to end the employment relationship on agreed terms, similar to a compromise agreement.  The Agreements can be proposed by either employers or employees at any stage in the employment relationship. 

Under the new rules, employers and employees will be able to enter into confidential discussions about the termination of employment under a Settlement Agreement which will be inadmissible in ordinary unfair dismissal proceedings.  Unlike the ‘without prejudice’ rule (which will run alongside the new provisions), an offer to end the employment relationship under a Settlement Agreement can be confidential even where there is no current employment dispute, or one of the parties is unaware that there is any problem.  The idea of this is to allow greater flexibility in the use of confidential discussions as a means of ending the employment relationship. 

The new rule will only apply in relation to unfair dismissal claims, and any such confidential discussions can therefore be relied on in a claim for discrimination, breach of contract and so on.  Claims relating to automatically unfair dismissals (for example dismissals on the basis of whistleblowing or union membership) are also not covered by the confidentiality provisions. 

Where there is ‘improper behaviour’ by a party, the evidence of the relevant confidential discussion will only be admissible in evidence to the extent that the Tribunal considers it just to allow it.  The draft ACAS Code lists examples of improper behaviour as including physical assault (or the threat of), discrimination and all forms of harassment, bullying and intimidation.  Another example cited is the use of undue pressure, for example an employer telling an employee that if he does not accept the agreement he will definitely be dismissed, before disciplinary proceedings have even started.  It would not of course constitute improper behaviour for employers to factually state the alternatives to entering into the Settlement Agreement, or give a neutral statement of reasons for the offer. 

Although Settlement Agreements are an important development in employment law, it remains to see how widely the confidential conversations will be utilised, in light of the long list of circumstances in which these discussions will still be admissible.  Our view is that these changes are unnecessary and employers should be able to utilise the existing regime using compromise agreements providing they receive expert advice from solicitors specialising in employment law.  It is likely that the new regime will only create more confusion and lead to satellite litigation based on the interpretation of the new laws.

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