Back in October 2012, Hanne & Co wrote an article entitled Settlement Agreements – a change in the law or Compromise Agreements in a new guise? That article discussed the introduction of settlement agreements and concluded that, as published, the proposals seemed to be more of a re-branding exercise than a major change to the existing system.
However, in June this year the Government introduced an amendment to the Enterprise and Regulatory Reform Bill which added a new section (111A) to the Employment Rights Act 1996 which impacts on rules surrounding the negotiation of settlement agreements.
ACAS have now produced the final version of their Code of Practice on Settlement Agreements which is takes effective from 29 July 2013. This article will revisit the question of what this change will mean in practical terms.
Firstly it should be noted that the requirements for a settlement agreement to be binding are the same as for a compromise agreement. These are that:
• the agreement must be in writing.
• the agreement must relate to a particular complaint or proceedings.
• the employee must have received advice from a relevant independent adviser, such as a lawyer or a certified and authorised member of a trade union.
• the independent adviser must have a current contract of insurance or professional indemnity covering the risk of a claim by the employee in respect of loss arising from the advice.
• the agreement must identify the adviser.
• the agreement must state that the applicable statutory conditions regulating the settlement agreement have been met.
There is, however, one major difference: Currently compromise agreements can be negotiated on a “without prejudice” (off the record) basis when an employment dispute already exists. This means that in the event that negotiations fail, the conversations are confidential and cannot be used by either party in any subsequent litigation. Section 111A ERA 1996 means that this without prejudice protection is extended to include situations where there is currently no employment dispute. As the ACAS guide states “pre-termination negotiations can be treated as confi¬dential even where there is no current employment dispute or where one or more of the parties is unaware that there is an employment problem.” This means that an employee could be entirely unaware that his position was under threat until he was handed a settlement agreement on a without prejudice basis.
It should be noted that this protection only applies claims for unfair dismissal and it does not apply to other claims such as discrimination or, wrongful dismissal. It also does not apply to claims for automatic unfair dismissal for example whistleblowing. It is also limited in that it does not apply when there has been “improper behaviour”. Whether there has been “improper behaviour” will ultimately be for the Employment Tribunal to decide although the Code gives non exhaustive guidance. Importantly, if an employer states before any form of disciplinary process has begun that an employee will be dismissed if a settlement proposal is rejected then this will be considered “improper behaviour”.
The Code also give guidance on how long parties should be given to consider the terms of the settlement agreement and states that as a general rule, 10 calendar days should be allowed as a minimum.
The practical impact of these changes will only be clear after 29 July 2013. It is suggested that the idea of what constitutes “improper behaviour” may be the most controversial and we can probably expect cases dealing with this point in the future.
Do contact the employment law team at Hanne & Co if you need any advice in this area.