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Media Briefing Note: Hogan Lovells Assesses Impact of New Rules on Confidential Settlement Discussions

25 July 2013

LONDON, 25 July 2013 - On Monday 29 July another significant change to employment law comes into force under the Enterprise and Regulatory Reform Act. The introduction of "confidential negotiations" before the termination of employment is designed to make it easier for employers to raise the prospect of an agreed termination of employment where an employment relationship is not working out. However, the protection offered by the new rules is far from watertight, according to Hogan Lovells.

At the moment, discussions between employers and their employees that are designed to bring an employment relationship to an end on agreed terms may be "without prejudice". If they are, the discussions cannot be referred to in subsequent employment tribunal proceedings. However, discussions will be "without prejudice" only if they are a genuine attempt to settle an existing dispute between the parties. In the employment context it is often unclear whether there is an "existing dispute" between the parties so that without prejudice privilege can apply.

The Government is introducing "confidential pre-termination negotiations" to try and allow employers to raise the prospect of an agreed termination with an employee (for example in the context of concerns about poor performance) even where without prejudice privilege would not apply. The new rules say that offers or discussions held before termination of employment with a view to a termination on agreed terms are not admissible in unfair dismissal claims.

However, such discussions will still be admissible if an employee claims that they have been automatically unfairly dismissed (for example for whistleblowing) or discriminated against. Discussions can also be referred to if an employer has engaged in "improper behaviour", as set out in the ACAS Code of Practice on settlement agreements. Such behaviour might include not giving the employee 10 days to consider an offer, or indicating that they will be dismissed if the offer is not accepted.

Employers who rely on the new rules therefore still cannot be sure that evidence of offers they have made on a confidential basis will not ultimately end up before a tribunal.

Ed Bowyer, a partner in the Hogan Lovells' employment team, commented:

"The intention behind the new rules is sensible. It is often difficult for an employer to raise the prospect of an agreed termination with an employee because there is no certainty that the conversation will be without prejudice. However, given how many unfair dismissal claims also include allegations of discrimination, it remains to be seen how useful the new rules will actually be in practice. They are certainly not the panacea for the difficulties of the without prejudice regime that businesses might have been hoping for."

 
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