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It is not unusual for an employer to tap an underperforming employee on the shoulder and offer them a compromise agreement, in return for an agreement to terminate their employment. The problem from the employer’s perspective is that cases have held that in the absence of a genuine dispute, the ‘without prejudice’ rule does not apply.

That means that if the employee chooses not to accept the compromise agreement, they can subsequently refer to both the fact that an agreement was offered and the conversations surrounding it, in any subsequent employment tribunal claim. This can cause an employer difficulty. If they offer a compromise agreement and it is rejected and they then (say) dismiss the employee for misconduct, the employee can argue that the dismissal and any investigation was a ‘stitch up’, because they failed to accept the compromise agreement.

To try and get around this problem, from this summer employers will be able to offer employees an agreed termination of employment under a 'settlement agreement' (a compromise by any other name).

Provided there is no ‘improper conduct’ or undue pressure by the employer, the employee will not be able to refer to the offer in unfair dismissal proceedings. So far so good, except that many employers might not appreciate that the fact of the offer could still be referred to in other claims, such as whistleblowing or discrimination claims.

Further, employers will have also have to comply with a new ACAS code of practice on settlement agreements in order to ensure that they are protected. The new code states that:

  • settlement offers may be made orally but any settlement agreement must be recorded in writing
  • employees should, as a general rule, be given a minimum of ten calendar days to consider the proposed settlement agreement and take independent legal advice
  • employees should be given the opportunity to be accompanied by a colleague or trade union official at any meeting to discuss the settlement offer and
  • the offer would lose its protection where there has been improper conduct (e.g. intimidation) or undue pressure from the employer

Settlement agreements might seem like a good idea in theory, but it is questionable as to whether or not they will work in practice. The fear is that their introduction will trigger all sorts of satellite litigation. How will allegations of undue pressure be dealt with in practice by the tribunal? The employer might claim that it acted perfectly reasonably and in accordance with the code, but the employee might say that s/he was shouted at and threatened with dismissal without pay. How will the Tribunal resolve such issues in practice? It seems likely that there will be more preliminary issues to resolve and that will invariably add to the costs.

Sarah Rushton

Tel: 0207 539 4147

This is intended for general information only and should not be considered as giving advice in relation to any individual case nor be taken as applying to any particular case. No liability is accepted for any such use of the information. 


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