Settlement Agreements – draft statutory Code of Practice released

This month ACAS (the Advisory, Conciliation and Arbitration Service) released a consultation document which includes a draft statutory Code of Practice on Settlement Agreements. The draft Code is only 10 pages long and currently includes some template letters for employers to use and adapt for their own purposes. ACAS say that “the Code is designed to help employers, employees and their representatives understand the negotiation of settlement agreements prior to any potential termination of employment.”

The closing date for responses is 9 April 2013. Statutory Codes of Practice such as this one are taken into account by Courts and Employment Tribunals when considering relevant cases although the advice contained in them is not legally binding. You may recall that we reported on the proposals related to settlement agreements last year. There is no news at the moment on when the draft Code of Practice will be brought into force. We will of course keep you updated on this.

‘Settlement Agreement’ is the new and improved name for ‘Compromise Agreements’ which many readers will be aware of (and as reported in our previous article which can be found here). Compromise Agreements seek to settle employment disputes. An employee will usually receive a sum of money in return for waiving their rights to bring claims in the Employment Tribunals or Courts under such an agreement. The sums of money offered and other terms are often points of negotiation between the employer and employee and this is usually conducted on a ‘without prejudice’ basis. This means the discussions around the offer and terms of the agreement cannot be used as evidence in legal proceedings. However, the ‘without prejudice’ rule only applies where there is an existing dispute between the parties. This leaves a gap for employers where there is no employment dispute, but the employer and/or employee still want to discuss and enter into a Settlement Agreement to terminate the employment relationship.

The Government previously talked about introducing the concept of protected conversations. This term is not being used any more, but the Government does intend to introduce a new section to the Employment Rights Act 1996 which will allow greater flexibility in the use of confidential discussions as a means of ending the employment relationship. This new section would mean parties may still offer and discuss a Settlement Agreement in the knowledge that their conversations cannot be used in any subsequent unfair dismissal claim. This will not apply if other claims are involved, such as discrimination or whistleblowing claims. The protection will also be invalidated if any party behaves ‘improperly.’ The draft Code provides examples of improper behaviour such as harassing or putting undue pressure on an employee to sign the Settlement Agreement, discriminating against the employee or an employee threatening to damage an employer’s reputation if they do not agree.

The draft Code also refers to allowing a cooling off period of a minimum of 7 working days for the parties to consider the offer of a Settlement Agreement, which seems entirely sensible. Employees will also still need to seek independent legal advice to understand which employment rights they will be waiving by signing a Settlement Agreement.

The draft Code is short but fairly clear and logical and along with the new section of the Employment Rights Act 1996, should assist employers and employees alike feel more comfortable when approaching Settlement Agreements. That said, the concept of ‘improper behaviour’ may lead to increased litigation and also there may be an increase in discrimination or whistleblowing claims which fall outside of the new rule.

Do you have any comments on the draft Code? We would love to hear from you. We can also help with Settlement Agreements. For advice or a no obligation chat please call us on 01243 836840 or email us at [email protected].

Please note that this update is not intended to be exhaustive or be a substitute for legal advice. The application of the law in this area will often depend upon the specific facts and you are advised to seek specific advice on any given scenario.