Settlement agreements and ‘off the record conversations’ – what you need to know

Using a settlement agreement to bring an employment relationship to an end, and effectively wipe the slate clean, can be very useful. However, to start the conversation, employers need to be able to speak ‘off the record.’ There are ways that this can be done, but employers need to take care and be aware of limitations.

What are settlement agreements?

A settlement agreement is a binding agreement to waive most contractual and statutory employment rights against an employer, usually in exchange for payment and sometimes other benefits such as an agreed reference.

To protect the employee where there may be an imbalance of power, the agreement is only binding if certain conditions are met. Most significantly, unless the agreement is reached through Acas, the employee must receive advice from a lawyer or an appropriately qualified advisor.

The benefits of settlement agreements

Dismissing an employee – and even negotiating an amicable exit, such as for health reasons, can be fraught with risk. Employers need to have a legally sound reason and must follow a fair dismissal process.

If not, an employee with more than two years’ service could successfully bring a claim for unfair dismissal. Employees do not need two years’ service if they can establish that something else was at play, such as if the employer found the employee difficult because they ‘blew the whistle’.

Using a settlement agreement can avoid the cost, delay, hassle, and risk of instigating dismissal procedures. This allows the employer, with the employee’s agreement, to end the relationship. Unless certain rights are carved out, a suitably worded settlement agreement should prevent the employee from bringing claims against the employer.

Even after the employee has left the organisation, if the employer is concerned the former employee may bring a tribunal claim, they can initiate discussions about entering a settlement agreement – or this may be suggested by the individual or their representative.

Bargaining position

Sometimes the individual will accept the payment offered initially, or they or their advisor will negotiate for more. The negotiations will often be based on what each party believes the individual’s claim would be worth if no agreement was reached and they went to tribunal. Employers with a strong ‘open’ position tend to be in a stronger negotiating position than those who are trying to get out of a situation involving a clear breach of the employee’s rights.

Benefits of ‘off the record’ discussions

Talking ‘off the record’ allows for a frank discussion without the risk of it being used in evidence before a court or employment tribunal.

Otherwise, if the employer asks the employee whether they would be interested in an agreed exit, the employee could resign and claim constructive unfair dismissal. Alternatively, if the employee is dismissed further down the line, they could use this conversation in an unfair dismissal claim to show that the performance management process was not what it was supposed to be and the employer ‘wanted them out’ all along.

When are conversations ‘off the record’?

If there is a dispute with the employee, the ‘without prejudice’ rule may apply to communications genuinely aimed at resolving the dispute through settlement. Such conversations cannot be shared with a tribunal if the negotiations fall through. This would apply to all types of employment claims, but does not apply in exceptional circumstances such as where communications involve fraud or blackmail.

If there is no dispute with the employee, and provided certain conditions are met, an employer can have what are known as ‘protected conversations’ without the risk of the conversation coming back to haunt them.

A word of warning: this protection only applies to unfair dismissal claims and discussions before the employee has left. If they have other potential claims, such as for discrimination, the conversation could form evidence in a tribunal.

This creates an element of uncertainty as the extent of potential claims may not be known. The protection also does not apply if the discussions involve ‘improper behaviour’. The Acas Code of Practice on settlement agreements gives examples of improper behaviour.

Non-disclosure agreements

The #MeToo movement shone a light on the use of non-disclosure agreements (NDAs) to cover up harassment and discrimination by silencing victims. Settlement agreements usually include confidentiality clauses preventing both parties from discussing the agreement or its terms. These clauses cannot, as a matter of law, prevent an individual from ‘whistleblowing’ or reporting anything to the police, and any wording suggesting this is void.

Various reports and consultations have taken place on NDAs since the #MeToo campaign. This has resulted in guidance on the use of NDAs from Acas and the Equality and Human Rights Commission, along with guidance to solicitors from their professional bodies.

Previously, the government announced it would bring about changes to the law on NDAs, including allowing an individual to disclose the settlement agreement to their doctor or other regulated health professional. These changes are to take place when ‘parliamentary time allows’ but there are no signs of this at present.