ACAS publishes revised Code of Practice on Settlement Agreements

Posted by Ruth Christy on

This article first appeared in People Management Daily

In 2012, the Government's consultation, "Ending the Employment Relationship" showed that employers were reluctant to go through protracted disciplinary procedures to remove staff, or to offer compromise agreements for fear of claims and the perceived costs and complexity of compromise agreements.

In response, the Government introduced "pre-termination negotiations" ("negotiations") to allow employers and employees to consider parting ways without (a) the need for formal procedures and (b) fear of the negotiations being referred to in a tribunal if an unfair dismissal claim were brought.

These negotiations are given legislative force through the Enterprise and Regulatory Reform Act 2013 and will come into force in summer 2013 – the exact date has not yet been specified. The final draft of the accompanying ACAS Code of Practice on Settlement Agreements (the new name for "compromise agreements") under section 111A of the Employment Rights Act 1996 (the "Code") was published in June 2013 and contains a number of key distinctions from the original. These are:

  1. A new paragraph setting out the statutory requirements for valid settlement agreements and general guidance on best practice as well as the legal requirements;
  2. The initial settlement offer no longer needs to be made in writing (to allow maximum flexibility in reaching settlement) although the final agreement must be in writing;
  3. The removal of template letters making settlement offers. These will be included in non statutory guidance to be published later;
  4. An increase in the recommended minimum period to allow individuals to consider the settlement offer from 7 to 10 calendar days, although this is no longer mandatory and the parties can agree an alternative timetable;
  5. A recommendation that employees be allowed to be accompanied to any settlement negotiations although this is not mandatory;
  6. Further examples of "improper behaviour" although the list remains non-exhaustive. Consideration was given to including detailed examples of behaviour which would not be "improper" but on balance this was vetoed and only a small number of examples are included;
  7. Further details of the interaction of negotiations (which can be held without the existence of a dispute) and the "without prejudice" rule (which would not apply to settlement negotiations unless there was a pre-existing dispute).

Although the Code has statutory effect, failure to follow it does not entitle a party to bring a claim, i.e. it is not a standalone right. Nor does a breach entitle a successful party to an increase or decrease in any damages awarded at tribunal (unlike a breach of the ACAS Code of Conduct on Disciplinary and Grievance Procedures).

In spite of the changes, the protection offered by this legislation – that negotiations cannot be referred to at tribunal – only applies to claims for "ordinary" unfair dismissal for which an employee would need 2 years service (for employment starting on or after 6 April 2012).

It will not apply where the individual claims that they were automatically unfairly dismissed or were unlawfully discriminated against. If, for example, an employee brought a claim for discrimination or whistleblowing, or alleged that the employer had used "improper behaviour" in conducting the negotiations, the protection would not apply and a tribunal would be able to take the negotiations into account when determining a claim.

It is not difficult to see that the limited protection afforded by this legislation is open to abuse by both parties. Disgruntled employees could suggest that their employers discriminated against them by introducing negotiations.

Conversely, hard pressed employers seeking to avoid best employment practice could assert that the negotiations were protected.

Employers will need to think carefully about the risks of engaging in negotiations and the impact that it will have on the working relationship, particularly if agreement cannot be reached.

The Code envisages that employers in such circumstances will simply go through a fair process – for example on the grounds of capability or conduct – in deciding whether to end the relationship and the existence of these negotiations will almost certainly complicate those processes.

Whether or not this change will achieve its stated aims is something that only time will tell.

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Ruth provides guidance for clients and keeps them up to date with the fast pace of change in employment law.

Ruth Christy
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