Termination negotiations and settlement agreements

Sadly, it’s somewhat inevitable that there will sometimes be a breakdown in the working relationship between employers and employees – for a variety of reasons – which will lead to one or both parties wanting to part company. In many cases, this can be achieved without the need for any formal agreement to document the arrangements; but in some cases either or both parties may wish to document the terms on which they have agreed to part company under a formal agreement.

Protected conversations and the ‘without prejudice’ rule

When an employer and employee are looking to part company the first step is to start a dialogue with the other party in order to discuss a potential parting of ways and the settlement terms. It can be tricky, however, to start such a conversation; particularly when the employer may be concerned about the potential for a claim if the employee eventually chooses not to enter into a settlement agreement.

Historically, employers used to raise the prospect of a settlement agreement by stating that the conversation was held on a ‘without prejudice’ basis. If the conversation was indeed ‘without prejudice’, this would mean that it could not be referred to by either party in any subsequent legal proceedings. In reality, however, such conversations are rarely capable of being ‘without prejudice’ as this would require there to be a pre-existing dispute which the parties were trying to resolve. In conversations regarding termination of employment, this is rarely the case.

In 2013 the Government introduced a new concept - a ‘protected conversation’ - which allowed employers to have pre-termination negotiations with their employees without the fear that such conversations could then be referred to in a subsequent employment tribunal if negotiations didn’t lead to a settlement being reached. Such conversations do have their limitations as they only offer ‘protection’ in the cases of straightforward unfair dismissal, but they can nonetheless be very useful.

Where it is not possible to have a ‘protected conversation’, it may still be possible to conduct settlement negotiations with employees. However, employers will need to be aware that anything they say during the course of such conversations may be referred to in evidence in any subsequent proceedings. They must be careful what they say, and how they say it, so as to avoid potentially giving rise to a claim.

Settlement agreements

Once an agreement has been reached, this will need to be formally documented to ensure compliance with the legal requirements. Without a formal settlement agreement being entered into and suitably documented, the arrangements will not normally be sufficient to settle the majority of employment claims.

When entering into a settlement agreement, the agreement will need to set out not only the terms which have been agreed, including any payments and other benefits, it will also need to specify the particular claims which the agreement is intended to settle. It is not enough simply to say that the agreement settles ‘all claims’ – specific details of those claims which are intended to be settled by the agreement must be included.

The employee must also take advice on the terms and effect of the agreement from a solicitor or other authorised independent adviser. It is normal for the employer to pay a contribution towards the legal fees which are incurred as a result of the employee taking such advice; and this should also be set out in the agreement itself. Without such independent legal advice being taken, the agreement will not be enforceable by the employer.

An employer will often want to include provisions relating to confidentiality in the agreement. This is acceptable but these must be very carefully drafted following significant criticism of, and concerns about, such clauses as a result of the ‘me too.’ movement.

How can we help?

At LCF, the Employment Law Team is extremely experienced in acting for both employers and employees in drafting and advising on the terms of settlement agreements. We also have significant experience of helping both employers and employees to negotiate strategic exits at every level.

For both employers and employees who wish to hold ‘protected conversations’ in order to reach a settlement, we are experienced in advising on the best way to approach these conversations in order to achieve the best outcome for all parties.

We also have significant additional expertise acting for both employers and employees on bulk settlement agreements; particularly planning and managing the logistical and practical difficulties of dealing with a large number of settlement agreements in a short time frame.

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