In these highly unusual and worrying times, more and more employers are issuing their employees with Settlement Agreements. These agreements are often offered to an employee following a ‘Protected Conversation’.

What are Settlement Agreements?

Settlement Agreements are legally binding contracts between an employer & an employee under which the employee agrees to waive their right to bring a claim against their employer in an Employment Tribunal in return for a severance payment and often a reference.

The agreement will usually contain the following terms:

  • That the employee will waive their right to bring a claim against their employer in the Employment Tribunal or in the County Court.
  • A date when the the employee’s employment will end and an agreement that the employee will be paid their normal salary, accrued holiday pay and benefits to that date.
  • An agreement that either the employee will work all or part of their notice period to the termination date or that the employee will be paid in lieu of notice.
  • A severance/compensation payment. This is the sum of money the employer offers as an incentive to the employee to waive their employment rights.
  • A clause requiring the employee to maintain their duty of confidentiality towards their employer and which requires the employee not to discuss the circumstances leading to the agreement or the terms of it. In addition, the employee is required not to disclose any confidential information about their employer which might include customer lists, pricing lists or information about suppliers.
  • A non-derogatory comments clause requiring both parties not to make derogatory comments about the other, whether that be on social media or otherwise.
  • An agreement by the employee that they have not committed an act of gross misconduct of which the employer is not aware.
  • Usually an agreement that the employer will, if required, provide the employee with an employment reference. If that clause is included an agreed reference is appended to the back of the agreement.

To be legally binding the employee must take the advice of a solicitor upon the meaning and terms of the agreement. The solicitor is required to sign a certificate confirming that they have advised the employee upon the agreement. The employer will pay a contribution to the employee’s legal fees which is commonly between £250 and £500.

A good solicitor will discuss the circumstances leading to the agreement carefully with the employee. Having done so, and with the employee’s agreement, the solicitor should:

  • Try to negotiate a higher compensation payment. This will depend upon the circumstances of the case and the sum offered. However, an experienced solicitor will always advise that the offer made is too low. Equally, the solicitor should advise the employee to accept a reasonable offer – given the costs and the stress of an Employment Tribunal claim.
  • Request an employment reference if one had not been offered under the original draft.
  • Remove clauses that are unhelpful to the employee. For example, it has now unfortunately become common for the agreement to include a clause stating that the employee has not secured new employment at the time of signing it or has even been in discussion with a new employer about new employment.
  • Ask that any outstanding training costs or loans due to the employer are waived.
  • Where discrimination may have occurred, ask that the employer agrees to pay for a course of counselling.

The agreement only becomes legally binding when it has been signed by the employer, the employee and the employee’s solicitor.

Protected Conversations

These are a relatively recent development in employment law. The purpose of protected conversations is to allow an employer to approach an employee with a view to the employee leaving the employer’s organisation. As the conversation is ‘protected’ the employer does not run the risk that the employee can later rely upon that conversation in an Employment Tribunal claim if a severance package cannot be negotiated or the employee does not want to leave.

Protected conversations were originally intended to deal with the underperformance of an employee – perhaps a senior manager – whose performance may not amount to misconduct or negligence but was nonetheless damaging to the organisation. They were introduced into law by S.111A of the Employment Rights Act 1996. The protected conversation can circumvent a lengthy and difficult performance management process.

Whilst employers could and still can have  ‘without prejudice’ conversations with an employee, for a without prejudice conversation to be privileged and incapable of being relied upon in any future Employment Tribunal or Court hearing, there has to exist an ‘existing dispute’. An existing dispute means that there has to be a situation where the employee could reasonably contemplate taking legal action against their employer. Such a situation may arise where an employee has been dismissed or has already raised a grievance and has intimated bringing a claim against their employer. That therefore limits the scope of without prejudice discussions.

The protected conversation process begins, ideally, by the employer writing to the employee inviting the employee to a meeting to discuss a possible settlement. That letter should be marked ‘Without Prejudice – Protected conversation (S.111A of the Employment Rights Act 1996)’. The letter should invite the employee to a meeting and should advise the employee of their right to be accompanied to the meeting by a work colleague or a trade union representative.

Care must then be taken in the meeting to avoid ‘improper behaviour’. That is, the employee should be told that if they do not accept an offer of settlement a disciplinary or performance management process will follow, which whilst it will be conducted fairly, could result in their dismissal. What should not be said is that if the employee does not accept the offer they will be dismissed. Similarly, the meeting should not be conducted in an aggressive or discriminatory way.

If the employee indicates a willingness to accept an offer to leave, they should be given a letter setting out the terms of departure. They should then be given 10 days to consider the offer. If, after 10 days, they do wish to accept a proposal, a settlement agreement should be provided although that can also be provided at the meeting.

There are limitations to the protected conversation legislation. It is intended only to prevent ‘ordinary’ unfair dismissal claims and if the potential claim that the employee may have is a discrimination claim or an automatic unfair dismissal claim (such as whistleblowing) then any conversation intended to negate such a claim will not be protected.

ACAS have produced a very useful guidance booklet on both settlement agreements and protected conversations and it is highly recommended that the booklet is considered before any such procedure begins. The link is here.

Read more about Settlement Agreements here