Skip to main content
Insight

Settlement agreements - draft code

18/02/2013
On 12 February 2013, ACAS launched a consultation on a draft Code of Practice on Settlement Agreements. Settlement agreements (which will replace compromise agreements) are legally binding contracts On 12 February 2013, ACAS launched a consultation on a draft Code of Practice on Settlement Agreements. Settlement agreements (which will replace compromise agreements) are legally binding contracts which can be used to end the employment relationship on agreed terms.  As well as the change of name, the Government is proposing to introduce a new law which will mean that offers of settlement cannot be used as evidence in unfair dismissal cases as long as there has been no "improper behaviour"" in the process of discussing the agreement. 

This new law aims to remove the concerns some employers have regarding the use of "without prejudice" discussions, in particular, the uncertainty which arises when such discussions take place in the absence of an existing dispute between the parties, rendering them potentially admissible in evidence. However, even if there is an existing dispute between employer and employee, employers will need to act cautiously as a breach of the Code may potentially result in the discussions and negotiations being used in evidence.

What constitutes "improper behaviour" will ultimately be for a Tribunal to decide but could include 'putting undue pressure on a party'.  The draft Code suggests that a failure to allow an employee a minimum 7 day period to consider the offer may constitute undue pressure.  One obvious concern for employers is that this may lead to lengthier discussions taking place before such agreements are concluded.

This concern is supported by the fact that the draft Code advocates formal discussions between the parties once an offer has been made.  The draft Code also recommends that employers should allow the employee to be accompanied at the meeting by a work colleague, trade union official or trade union representative. Failure to allow representation could mean that the discussions can be referred to in any subsequent litigation. In practice, this is likely to lengthen the settlement process as employers are likely to have to write to the employee (the consultation also contains suggested template letters) initiating the settlement agreement discussions rather than commencing the discussions verbally and meetings may be harder to arrange if the employee's chosen representative is unavailable.

It is clear from the consultation that ACAS is keen to have input not only on the content and scope of the draft Code but also on the non-statutory guidance, which is intended to provide good practice guidance on offering and negotiating settlement agreements. The deadline to respond to the consultation is 9 April 2013.

 

Sign up to our email digest

Click to subscribe or manage your email preferences.

SUBSCRIBE