How to tell an employee: “Agree to severance terms, or you’re fired!”

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On 29 July 2013 the Government introduced a new section into the Employment Rights Act 1996 introducing the concept of “pre-termination negotiations”.

No doubt we are all familiar with pre-termination negotiations (or, more colloquially termed “settlement discussions”) but, to avoid any confusion, they invariably take place between employee and line manager and are along the following lines:-

“Look, Brian, I value the effort you have put into your job but, after ten years of service, the job has moved on but your skills have not. I have genuine performance concerns. We could go down the performance management route, and see what develops, which may not be a pleasant process for either of us. Would you prefer to do a deal and leave on agreed terms?”

The terms of any such discussion are now inadmissible in any subsequent proceedings for ordinary unfair dismissal brought by the employee – that is, neither party is entitled to notify the Tribunal that the discussion even took place, never mind what was said. This can be a very important rule. Often employers will say things during settlement discussions which contradict their stance before the Tribunal. For instance, during a settlement discussion, a line manager may say to the employee “you are good, just not quite good enough”, whereas, before the Tribunal, the official line may be “he was the worst employee we ever had”. Obviously, in such a situation, the employee will want to tell the Tribunal all about what was said during the settlement discussion.

How to handle a settlement discussion

The law in this area can now be summarised as follows:-

1. Settlement discussions cannot be referred to in Tribunal proceedings for unfair dismissal.

2. Most significantly, an employer can announce to his employee “out of the blue” that they are having a settlement discussion”. This is significantly wider than the old “without prejudice” rule (see point 6 below), under which there had to be in existence a dispute (i.e. both employer and employee complaining about each other) before any discussion about that dispute could be said to be without prejudice and confidential.

3. ACAS has produced a statutory Code of Practice which Tribunals are required to take into account. One of the Code’s key suggestions is that employers, when putting forward a settlement proposal, explain why they are doing this. For instance, if the employer has performance concerns, he should say so.

4. Whilst employees do not have a statutory right to have a companion during any settlement discussion, the Code does suggest that employers allow this as a matter of best practice.

5. The Code further states that the employee cannot use anything said during settlement discussions as the basis for a grievance.

6. Note that the new “settlement discussion” concept is additional to the old “without prejudice” rule. It has long been the policy of the courts that, where parties are in dispute, any discussions genuinely aimed at settling such disputes are exempt from being referred to in legal proceedings. The reason behind this rule is that it is in the best interests of all if parties are able to do deals and avoid the expense of legal proceedings. However, the old “protection” is only triggered by discussions held once the parties are in dispute. For example, where the employer has begun disciplinary action and the employee has filed a counter grievance. In that scenario, there is a two-way dispute – employee and employer are complaining about each other. Conversely, if the complaints are coming from the employer only, there is no dispute and hence no scope for a without prejudice discussion. However, the new settlement discussion rules fill this gap. They effectively allow the employer to announce to the unsuspecting employee “you are not up to standard in my opinion; I am considering disciplinary action; lets see if we can do a deal first”.

When the settlement discussion will not be confidential

The statutory protection (i.e. from being referred to in Tribunal proceedings) afforded to settlement discussions applies only to ordinary unfair dismissal claims. Protection does not apply to claims for discrimination, automatically unfair dismissal (e.g. a health and safety related dismissal or a whistle blowing dismissal), nor to wrongful dismissal claims (i.e. claims for notice pay.

Settlement discussions lose their protection if the employer is guilty of improper behaviour. What is “improper”? The Code gives a non-exhaustive list of examples including harassment, bullying and intimidation, offensive words or aggressive behaviour, physical assault or threats of physical assault or other criminal behaviour and discrimination/victimisation. Also, the employer must not put improper pressure on the employee by, for example, not allowing him reasonable time to consider terms of settlement (the Code suggests a minimum period of ten days), telling the employee that if they do not do a deal they will be dismissed (although it is perfectly proper to notify them that they will face a disciplinary process).

Stephen Hopkins, Partner at The Wilkes Partnership, says: “Overall, settlement discussions should be seen as a welcome development in the law by employers. Provided employers avoid the obvious pitfall of approaching such discussions in a disproportionately aggressive manner, they have everything to gain and nothing to lose”.

If you have any query arising from this update, please contact Stephen Hopkins or any member of the Employment team.