The Acas Code of Practice on Settlement Agreements provides guidance on the use of settlement agreements to resolve workplace disputes. Settlement agreements are legally binding contracts that end an employment relationship or resolve specific issues, typically involving an agreed payment to the employee in exchange for the employee waiving their rights to pursue certain claims. The Code makes clear that settlement agreements must be entered into voluntarily by both parties and that either party should feel pressured into accepting the terms. Coercion, discrimination, or undue pressure are prohibited and may invalidate the settlement process.
Section 111A of the Employment Rights Act 1996 introduces a framework for confidential pre-termination discussions, also known as "protected conversations", between employers and employees. These discussions aim to resolve workplace disputes and potentially agree on termination terms under a settlement agreement without the risk of the discussions being disclosed to an employment tribunal in unfair dismissal claims. Confidentiality protection is lost if there is improper behaviour during the discussions. The Code provides examples of improper behaviour, which include where the employer threatens dismissal if the employee doesn’t agree to the settlement, using bullying language, or where there is unlawful discrimination or harassment.
In a claim for unfair dismissal, an employee sought to rely on evidence that his employer had put undue pressure on him to accept an offer of an enhanced redundancy package during settlement discussions contrary to the Code. An employment tribunal found that this discussion was a pre-termination negotiation and was therefore inadmissible in an unfair dismissal claim. The tribunal found that the exception to the admissibility rules where there is improper behaviour did not apply on the facts. On appeal, the Employment Appeal Tribunal agreed with the employment tribunal’s decision based on their factual findings.
In particular:
- Informing the employee that a redundancy process would begin if he did not accept the offer was not the same as telling him that he was going to be dismissed if he did not accept, since a redundant employee may not always be dismissed.
- While it may not have been fair to use a return to work meeting following sickness to raise the possibility of termination of employment on settlement terms, fairness was a different question to impropriety.
- The Acas Code refers to a ten-day period for considering a written offer. In this case, the setting of a 48-hour deadline for acceptance was in relation to a verbal offer put forward at the meeting. If the claimant had accepted the verbal offer, a written offer would have been provided later. Considering all the relevant circumstances, in this case the 48-hour deadline did not amount to undue pressure.
FSB members should take advice from the FSB Legal Advice line prior to dismissing any employee.