Terminating employment – negotiating a settlement

Negotiating an exit

With P&O in the news over their sacking of over 800 staff, there are reports that this has come with the offer of settlement agreements for those staff.  However, there is a risk where ‘dismiss first, settle later’ is the chosen route that this may mean that some staff are less willing to settle – either because they believe they may get more money in an Employment Tribunal, or because they are (understandably) upset about their treatment and want their ‘day in court’.  Another issue facing P&O is that regardless of whether staff ultimately accept the settlements being offered, the damage to P&O’s reputation has potentially already been done.

So how could a situation such as this have been handled so as to limit the risk of such reputational damage and to maximise the likelihood of the employees accepting the offer of settlement which has been made?  Having settlement discussions pre-termination can be an extremely useful tool to minimise the risk of a claim and to avoid potential reputational issues.  It can also sometimes be a ‘nicer’ way to deal with staff who are not performing or who are otherwise simply not suitable for the role or the organisation.

It is never an easy conversation to have, but how is it best to approach such a conversation, and what are the risks – and potential benefits – in doing so?

'Protected conversation', 'without prejudice' or neither?

It used to be that the only option for conducting ‘off the record’ settlement negotiations was to rely on the ‘without prejudice’ rule.  However, this can only be relied upon where there is a pre-existing dispute – either an existing claim or where one party might reasonably contemplate bringing a claim – and the negotiations are a genuine attempt to settle that claim.  This will often not apply in practice as it is often the case that employers and employees will want to part company even where there is no active dispute.

In recognition of this fact, a new section 111A was inserted into the Employment Rights Act 1996, under which it is possible for an employer and an employee to have an ‘off the record’ conversation in order to seek to agree a termination of employment on mutually agreed terms.  The fact and contents of that conversation cannot be referred to by either party in any subsequent proceedings.  However, there are limits to when such conversations can take place and the ‘protection’ available.  In general terms, protected conversations are only ‘protected’ in relation to ordinary unfair dismissal claims.  If any other type of claim is raised, including breach of contract, discrimination and automatic unfair dismissal, the rule will not apply and it will be open to the parties to refer to the conversation in such a claim.

What if neither applies?

Does that mean that if there is a potential claim for anything other than ordinary unfair dismissal, and there is no outstanding dispute, it is not possible to negotiate a settlement?  Thankfully not.  Regardless of whether it is possible to have a ‘protected’ or ‘without prejudice’ conversation, it is still always open to an employer and employee to seek to reach an agreement.  However, if neither of these rules apply it should be remembered that the fact of the conversation and anything which is said will be admissible in any subsequent claim, should it not be possible to reach a settlement.

Are there any expectations?

It is possible to challenge the protected or without prejudice status of a conversation, although this should hopefully be rare.  If there has been any ‘improper behaviour’ in a protected conversation, or if there is any ‘unambiguous impropriety’ in a without prejudice conversation, then it may be possible to refer to the conversation – or at least part of it – in any subsequent claim.  What this means is that, for example, any bullying, victimisation or discrimination in the course of the conversation may well leave its status open to challenge and it is therefore important to ensure that such conversations are conducted appropriately.

What are the rules for protected conversation?

Whilst there are no hard and fast legal requirements for a protected conversation, Acas has produced a Code of Practice which employers would be well advised to follow, as the Code may be taken into account by an Employment Tribunal when considering whether a conversation is admissible in any subsequent proceedings.  This code includes:

1. Allowing the employee to be accompanied to the meeting;
2. Holding meetings at an agreed time and place;
3. Giving at least 10 days for the employee to consider any offer made; and
4. Explaining to the employee why the offer has been made.

The code also gives examples of what is likely to amount to ‘improper behaviour’.

The code unfortunately does not give a great deal of practical guidance on how to hold the conversation, and if employers have any concerns about this we would always recommend taking advice in order to understand whether your conversation will be covered and the steps that you can take in order to minimise the risk of a claim.

What happens after the conversation?

If the employee is prepared to consider the offer, it is sensible to put the offer in writing so that the employee may seek advice on the terms of the offer.  You do not have to have a settlement agreement drawn up at the point at which the conversation takes place and may simply decide to write to the employee setting out the basic terms for them to consider.  However, if they would like to proceed, you will need to provide the employee with a settlement agreement on which they will need to take legal advice.  It is normal for the employer to make a contribution towards the employee’s legal fees, although this is not compulsory.

As noted above the employee should be given a minimum of 10 days to consider the terms of any offer made.

What is a settlement agreement?

A settlement agreement is a legal contract which will set out those claims which are to be settled by the employee and the terms on which they are agreeing to settle.  This will normally include terms such as pay to the termination date, notice and pay for the notice period, unpaid holiday pay and any other sums or benefits which are to be provided to the employee.

In order to settle employment claims, the agreement must comply with certain legal requirements and for this reason it is important that the agreement is properly drafted.  We would always recommend seeking proper legal advice so that you can be sure that your agreement is up to date and complies with the current legal requirements and settles all necessary claims.

Employers will often want to include confidentiality provisions in a settlement agreement, but note that there are certain limitations on what can be required, and any confidentiality provisions should always exclude matters such as whistleblowing and reporting/assisting with criminal and regulatory investigations.

What can we do to help?

The employment team at LCF are extremely experienced in advising in relation to negotiating exits for both employers and senior employees, including advising in relation to holding pre-termination negotiations, as well as drafting and advising in relation to settlement agreements.

The employment team will be more than happy to discuss your needs with you.  If so, please contact James Austin on 01423 851 138 or email ku.oc1713507291.fcl@1713507291nitsu1713507291a.sem1713507291aj1713507291 for more information.

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