Settlement Agreements: ‘No fault dismissals@ by any other name?

17th February 2012

Many of you may remember that the recent Tory idea of being able to dismiss someone without any fault was mooted and dismissed by Parliament late last year. Against that background we now have Settlement Agreements, and ACAS has published its draft guidance on them; it is useful to consider what they are and how they will work.

First, what are they? Well, they’re the successor to the compromise agreement, and they will be one of the ways in which a contract of employment may be terminated but where an employee agrees to waive their employment rights and not pursue a claim against their employer. Largely the same rules apply as with compromise agreements, so that they will still: be in writing, set out specific complaints or proceedings which are being settled or waived, require the employee receive independent legal advice, and the advisor must be named and have in place an appropriate policy of professional indemnity insurance covering any loss sustained as a result of the advice provided, and the agreement must confirm that it complies with the Settlement Agreement rules. Like Compromise Agreements, Settlement Agreements are voluntary and one party cannot force the other to sign the agreement.

So, where’s the difference with the present regime? Well other than the name, the main difference arises from the manner in which they are presented. A Compromise Agreement requires a pre-existing dispute which it must settle, a Settlement Agreement does not, and it may be used to terminate employment where no prior dispute has arisen.

Further, the new Settlement Agreements shall be subject to different rules when they are discussed; they go beyond the without prejudice rule in that the discussion about them cannot be brought up in evidence in unfair dismissal claims, unless there is a degree of “Improper Behaviour” this includes any form of harassment, bullying or discriminatory behaviour, the use of offensive words or aggressive behaviour, any victimisation, any physical assault or threat thereof, or placing undue pressure on the other party by refusing a reasonable time frame, indicating that failure to accept the agreement will lead to dismissal, or to attempts made to damage an employer’s reputation or standing. It follows that the rules relating to the inadmissibility of these discussions are slightly wider than their “without prejudice” cousins, and potentially useful to employers.

However, the wide definition of Improper Behaviour must be noted as this could lead to the discussion becoming admissible before an employment tribunal. Further, these meetings cannot be used to hide discriminatory comments, and may still be revealed to a tribunal as amounting to discrimination where appropriate. Therefore before proceeding an employer is strongly advised to take legal advice, both on the situation in which it finds itself and also in the proposed content of the protected conversation.

Finally, before any Settlement Agreement can be accepted the employee has to be given at least 10 days to consider the agreement, and take legal advice, before it can be accepted.

Essentially Settlement Agreements are likely to operate in much the same way as their predecessors, the compromise agreement, albeit with a few tweaks in the rules and a change of name. No doubt time, and a series of satellite litigation, will tell what will actually be protected under a protected discussion. Watch this space and join us on twitter to see updates as to when the use of Settlement Agreements is due to be implemented, and other key dates and changes of which you must be aware.