Rather than simplify the process for holding discussions about a termination situation, the law has become more complicated. From 29th July, compromise agreements will be renamed as settlement agreements and a new process for holding pre-termination discussions will be introduced. The latter is to enable discussions to take place about a potential termination situation but the content of those discussions would not be admissible as evidence if an agreement was not concluded. At the same time, ‘mandatory’ conciliation is being introduced which should mean a claim can not be lodged with a Tribunal until conciliation has been attempted. For years, there have been two other routes which are well understood so why introduce this new legislation of limited application? Those well trodden routes are without prejudice negotiations leading to a compromise agreement and COT3 settlements.

Settlement Agreements

Settlement agreements are very similar to compromise agreements in their formalities and scope. A settlement agreement may be used to negate a wide range of employment claims such as unfair dismisssal, discrimination and breach of contract. The agreement must specify the particular claims as generic ‘cover all’ clauses will make the agreement invalid. An agreement can not prevent claims regarding accrued occupational pension rights or latent personal injuries

The process itself also has to conform to the statutory requirements for settlement agreements:

• To be legally binding, a settlement agreement has to specifically state the claims that it is intended to cover.
• Other provisions are similar to compromise agreements – the need for an independent adviser for the employee; the adviser must be covered by insurance or professional indemnity for this purpose; the adviser must be identified in the agreement, the agreement must state that the statutory conditions have been met.
• Confidentiality of pre-termination discussions in unfair dismissal claim will not be protected if there is improper behaviour in the making of the offer or the agreement but that will be for a Tribunal to determine on the basis of whether the Tribunal considers it just to prohibit evidence of the discussions being allowed.
• Examples of improper behavoiur have been given in the ACAS Code of Practice and may be expanded in the ACAS Guidance Notes. Examples include harassment, bullying and intimidation, discrimination, victimisation, a threat of or actual physical assault, other criminal behaviour,, applying undue pressure on a party. The latter may include insufficient time to consider the agreement, an employee threatening to undermine the organisation’s public standing if the agreement is not approved (except if whistleblowing grounds apply).or warnings of the consequences of not coming to an agreement.

ACAS explains that the last point does not prevent an employer explaining in a neutral manner that a disciplinary procedure may be necessary or the alternatives if an agreement is not concluded.

The ACAS Code also refers to advisory rather than mandatory requirements and in particular:

• The employee ought to be given a minimum of 10 days to consider the written offer but the parties may agree otherwise.
• A representative should be allowed to accompany the individual to discussions.

The new provisions regarding confidentiality of discussions do not replace without prejudice discussions so we explore the differences below.

Without Prejudice Negotiations

These allow parties to discuss the reasons for and terms of a proposed settlement without the fear of those discussions being used as evidence of an admission of liability. This applies to a variety of situations and not just employment law. Such discussions and correspondence are often headed ‘Without Prejudice’. In employment issues, the final agreement took the form of a compromise agreement (a settlement agreement from 29/7) in which the claims to be settled and the terms of the settlement are set out in writing.

The without prejudice principles cover all bona fide offers of settlement or compromise of claims, whether litigation is pending or contemplated, provided the discussions are conducted with the aim of a settlement. Offers of settlement and responses by way of acceptance or counter-offer are covered. However, the protection will be lost if there is fraud, undue influence or some other ‘unambiguous impropriety’ such as perjury or blackmail.

Without prejudice correspondence may be admissible, once the issue of liability has been determined. For example, in an action for breach of confidentiality of the terms of the agreement, it may be necessary to refer to those terms and discussions around the terms. Simillary, if there are issues of costs or a delay or unreasonable refusal to settle, referral to the discussoins and terms may be necessary.

Without prejudice protection will only apply if there is an actual dispute between the parties. Hence, discussing tentative situations which are not likely to lead to a dispute would not be protected even if the discussions and correspondence were denoted as ‘Without Prejudice’. This is a weakness for which settlement agreements are acclaimed as the solution to make settlements easier in employment situations. How much protection do the new provisions give compared to the without prejudice principles?

New Provision for Confidentiality of Discussions

Confidential, exploratory discussions about an employment issue can be held even if there is not an actual dispute at the time or one or more of the parties is unaware that there is an employment issue that could give rise to a claim. For example, an employer may wish to discuss the future employment of an employee and suggest an offer to terminate employment or a significant change to an employee’s role.

The parties may discuss an offer in the knowledge that their conversations cannot be used in any subsequent unfair dismissal claim. Although a settlement agreement can address a wide range of employment claims, the confidentiality of the negotiations is only protected in the instance of unfair dismissal claims. Confidentiality will not apply to:

• discrimination harassment, victimisation and other claims under the Equalities Act.
• Wrongful dismissal
• Breach of contract
• Automatically unfair reasons for dismissal such as whistleblowing, asserting a statutory right, trade union membership.

Hence, the protection of discussions has a limited application. Moreover, that protection is easily lost as there are several conditions that have to be fulfilled.

These new provisions are quite limited in scope so it is likely that without prejudice negotiations will remain of wider application.

I can understand why confidentiality has not been extended to other types of claims. However, it suggests that making it easier to remove a person’s livelihood via an unfair dismissal is more justifiable than say a discriminatory act.

COT3 Settlements

These are normally used where a dispute has emerged and a claim lodged with an Employment Tribunal office. ACAS will contact the parties to see whether there is a prospect of settlement before arrangements are made for a hearing. If an agreement is reached, the claim is settled by the signing of a COT3 form which prevents the claim being pursued. The nature of the circumstances leading to the claim may be such that an employer or employee may prefer to use a compromise (settlement) agreement with the full confidentiality clauses and indemnities.

If the issue is fairly straightforward a COT3 is a useful approach but in more complicated situations the experience and willingness of the ACAS official to produce an agreement to cover multiple issues is not guaranteed.

Mandatory conciliation prior to lodging a Tribunal claim is to be introduced. That appears to fall short as an employee is not bound to see the process through and so the number of settlement agreements may not be high as hoped with the result that the workload and cost of employment tribunals will not decrease significantly.

Benefit

Employers already have extensive rights to terminate employment as the clue is in the law relating to unfair dismissals. The aim of simplification has become confused with creating a greater imbalance of rights in such situations. ACAS has tried to offset that in the Code of Practice. There is a real risk that the protection of confidential discussions will lead some managers to have damaging conversations which cause real rifts in the work place which will destroy trust built over many years.

Overall, I wonder whether the time devoted to this topic would have been better used in simplifying other areas of employment law.

© 2013 HR Management Dimensions Ltd.

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