Government reforms: (3) Settlement agreements & the final ACAS code

settlement agreementACAS has this month published the final “Code of Practice on Settlement Agreements” and its response to the Government’s consultation on settlement agreements. These are available here. The Code is awaiting Government approval, which can be expected shortly. There will also be non-statutory guidance from ACAS accompanying the Code, which has not yet been published but which we can expect to contain further best practice guidance, template offer letters and a model settlement agreement.

This final Code will accompany the introduction of settlement agreements and discussions which are due to come into force this Summer (see above: Government Reforms: (1) Updated timetable). This final version is fairly similar to the one attached to the consultation paper, which we reviewed in our February 2013 newsletter, Settlement Agreements: ACAS consultation. However, it has the following important differences:

  • There is no longer a requirement for the initial termination settlement offer to be in writing (although in order to be valid any final offer must be in writing).
  • Template letters are no longer included in the Code and instead will appear in non-statutory guidance.
  • Employees should have a minimum of 10 calendar days (as opposed to the previous 7) to consider any settlement offer. However, this is no longer a mandatory period, and parties can agree on another reasonable period.
  • Employees should be accompanied at any pre-termination negotiations by a colleague or Trade Union representative. However, this is not a legal requirement but rather “good practice”.
  • The Government has made clear that the new rules surrounding confidential pre-termination negotiations and the existing “without prejudice” rule are to run alongside each other. As there must be a pre-existing dispute between the parties for a conversation to be covered by the “without prejudice” rule, it may be useful that, even where no employment dispute exists, the parties will still be able to offer and discuss a settlement agreement without those discussions being used in any subsequent unfair dismissal claim (although, unfortunately, such discussions could still be raised in respect of any other claims such as discrimination). There are differences between the applicability of these two rules.
  • The Code also expands on its guidance to what can amount to “improper behaviour” and makes clear that what is currently regarded as ‘unambiguous impropriety’ in without prejudice cases would also be regarded as improper behaviour. “Improper behaviour” will include, but is not limited to, all forms of harassment, bullying or intimidation; physical assault or the threat of physical assault or any other criminal behaviour; all forms of victimisation; discrimination on any of the usual protected grounds; or putting “undue pressure” on a party. Only three examples of undue pressure are now included in the Code, although more will be given in non-statutory guidance:
    • an employer not allowing an employee the minimum 10 days to consider the formal written offer;
    • telling an employee, before any disciplinary process has begun, that he or she will be dismissed if the offer is not accepted; and
    • for employees, threatening to undermine the employer’s reputation (other than by protected whistle-blowing) unless the employer agrees to sign.

The above definition of ‘improper behaviour’ is of particular relevance as settlement offers and agreements will be admissible as evidence in unfair dismissal claims if the Tribunal decides that anything said or done by the employer in the course of such discussions was “improper”. Therefore if employers are intending to rely on the protection that settlement agreements afford they need to be sure they have not acted improperly. Indeed, one of the reasons ACAS was asked to produce a Code of Practice was to allay concerns about the uncertainty caused by the reference to ‘improper behaviour’. The risk being that, if employers remain unclear as to the scope of improper behaviour, they will shun confidential negotiations. Despite the Code being finalised, that uncertainty will remain as, ultimately, it is up to Tribunals to decide what constitutes ‘improper behaviour’. Nevertheless, the Code will be influential and it will, therefore, be important for any employers considering taking advantage of the new legislation to consider it carefully.

Comment: The Code will no doubt prove helpful in the context of complying with the new rules on settlement agreements and discussions, particularly by helping employers avoid ‘improper’ behaviour. However, as we explained in our May newsletter, Government reforms: finalised, settlement offers are still only to be excluded from disclosure in unfair dismissal proceedings. Therefore our view remains that the use of these agreements will be limited. Why not, when paying settlement money to an employee, cover off all claims and use a compromise agreement and ACAS pre-claim COT3 settlement instead? These will still be available to you.