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Will 'Pre-Termination Discussions' and 'Settlement Agreements' Settle the Real Issue?


As part of the government’s initiative to reduce Employment Tribunal claims, the bulk of the new Enterprise and Regulatory Reform Act 2013 came into force on 29 July 2013. It aims to reduce the regulatory burden on businesses and boost economic growth.

Amongst other things, the Act seeks to widen the circumstances in which conversations between employers and their employees will be confidential and protected. It also re-labels compromise agreements as settlement agreements.

Employers have historically been able to initiate ‘without prejudice’ or ‘off the record’ conversations with their employees. The contents of those conversations are prevented from later being shared with the Tribunal as evidence or as an indication of liability, but only if they amount to a genuine attempt to settle an existing workplace dispute.

The Act extends this confidentiality protection. It encourages frank conversations to be had about an individual’s employment coming to an end, even if there is no existing dispute and the individual is unaware that there’s a problem.

This is a novel concept geared towards increasing employers’ confidence in managing their staff, exploring potential exits and removing their fear of receiving Employment Tribunal claims.

However, there are significant limitations which apply to the new concept of ‘pre-termination discussions’. It’s important that employers are aware of them as any discussions which slip through the net will remain admissible to the Tribunal as evidence.

Firstly, the protection afforded by pre-termination discussions will only apply to conversations where the goal is the individual’s employment coming to an end.

Secondly, the protection only extends to potential ordinary unfair dismissal claims. This means that conversations which are discriminatory in nature, or concern discrimination allegations, for example, will not be classed as pre-termination discussions and therefore will not benefit from confidentiality protection under the Act.

Those sorts of conversations will remain admissible to the Tribunal in any future claim unless they are about an existing dispute, triggering the traditional ‘without prejudice’ rules.

It is currently unclear whether conversations relevant to a claim consisting of both ordinary unfair dismissal and other complaints would attract confidentiality protection under the Act. We anticipate guidance from the Tribunal being necessary on this point as, often, it is already difficult to predict what claims could be brought by an employee when initial exit discussions take place.

In addition, as there is no need for an existing dispute under the new pre-termination discussion rules, the potential issues are likely to be unknown by the employer.

For now at least, employers should be wary of what they say given that their pre-termination discussions may not remain confidential if any future claims are based on more than just ordinary unfair dismissal. They should continue to rely upon the existing without prejudice rules and only initiate discussions where there is an existing dispute, to ensure that confidentiality is preserved.

Thirdly, employers will be unable to rely on pre-termination discussions protection if their approach is found by a Tribunal to have been ‘improper’. ACAS has issued a new guidance-only code which gives some helpful examples of ‘improper’ conduct.

The code suggests that improper conduct includes behaviour such as harassment, bullying and intimidation, physical aggression or threats of it, threatening dismissal before any disciplinary process has commenced and applying unreasonable time pressure for a termination proposal to be considered (the code suggests that 10 days would be reasonable although this is unlikely to be practical).

A similar exemption already applies to the existing without prejudice rules, where ‘unambiguous impropriety’ will override the confidentiality protection afforded. However, based on the examples included in the code it seems that the new ‘improper conduct’ test will cover wider and less serious behaviour than the ‘unambiguous impropriety’ test which applies to without prejudice conversations.

On a practical level this means that pre-termination discussions are likely to cover fewer topics and be less flexible in comparison to without prejudice conversations (where the threshold for ‘unambiguous impropriety’ is seemingly much higher).

Given the above limitations, it’s arguably unlikely that pre-termination discussions will have any real impact on reducing the volume of Employment Tribunal claims.

However, if a pre-claim agreement is reached with an employee (whether achieved by pre-termination discussions or under the existing without prejudice rule) it is sensible to record the details in a formal settlement agreement.

The standard contents of a settlement agreement are no different to compromise agreements. It’s really just a new label designed at making employment law more accessible and less intimidating for employers.

The ACAS code also reinforces the importance of properly documenting settlement agreements, as does a recent Tribunal case where an exchange of letters between an employer and an employee (which did not include any detailed terms) was found to have been sufficient to settle a claim.

In conclusion, whilst the Act appears to introduce numerous changes on the face of it, there is little practical difference. Employers should continue to take specialist legal advice before negotiating an employee’s exit to ensure that any discussions they have are protected and that the best possible outcome is achieved.

Disclaimer: Anything posted on this blog is for general information only and is not intended to provide legal advice on any general or specific matter. Please refer to our terms and conditions for further information. Please contact the author of the blog if you would like to discuss the issues raised.