When an employment relationship has broken down, an employer may wish to explore whether there is scope for an agreed exit. A ‘without prejudice’ or ‘protected conversation’ can sometimes provide a useful way to have an open discussion about settlement.
In this blog, we outline how ‘without prejudice’ and ‘protected conversations’ work, when they can be applied and the key risks employers should consider before entering into a settlement agreement discussion with an employee.
What Does Without Prejudice Mean?
Conversations as a genuine attempt to settle a claim or dispute will not usually be admissible in court or Employment Tribunal proceedings. For without prejudice protection to apply, there must usually be:
- An existing dispute between the parties.
- A genuine attempt to resolve that dispute.
- An offer of a settlement.
- Contemplation by the parties of litigation if they don’t agree.
However, simply labelling an email or conversation ‘without prejudice’ does not mean that it benefits from this protection.
What is a Protected Conversation?
Under section 111A of the Employment Rights Act 1996, a pre-termination discussion about a settlement may be inadmissible in any subsequent legal proceedings regarding an ordinary unfair dismissal claim, even where there is no pre-existing dispute, e.g., where it is offered as an alternative to disciplinary or redundancy proceedings, or where there are performance or other issues.
There are, however, limitations on this rule, a key one being that, unlike the without prejudice rule, it cannot be applied in other types of Employment Tribunal claims, e.g., discrimination, whistleblowing, certain other types of automatically unfair dismissal or breach of contract. There are also certain rules which must be complied with in respect of how an offer is made, including that there must be no undue pressure from the employer.
How Should Employers Approach Settlement Agreements?
Before initiating a settlement conversation, employers may need to take advice on which, if any, of the rules on non-admissibility potentially apply, and how to conduct the conversation so that they meet the legal relevant legal requirements.
Once a potential agreement is reached, the employer will need to have a written settlement agreement drawn up which needs to comply with certain legal requirements in order to be binding, the main one being that the employee must have received appropriate legal advice on the terms of the agreement from a person who is authorised to provide such advice, e.g., a practicing solicitor.
The employer should also:
- Allow sufficient time for the employee to consider the offer which has been made, with ACAS recommending 10 calendar days for the employee to review and obtain advice.
- Ensure the financial package is tax compliant by separating taxable contractual earnings with any qualifying non-taxable payments such as redundancy pay or compensation, which may benefit from the £30,000 tax exemption where relevant conditions are met.
Getting the Right Advice Before Starting the Conversation
Without prejudice and protected conversations can be useful tools, but they are not a shortcut to ending employment. Employers must consider the legal and practical risks before starting discussions.
A poorly handled conversation could potentially be referred to in later proceedings and may lead to a successful claim of constructive dismissal. Comments made during the discussion could also create additional legal risks if they suggest discrimination, retaliation or that a dismissal decision has already been made. How the conversation is handled is therefore just as, if not more important than, the wording used to label it.
If you’re considering entering into a settlement agreement, contact EML on 01942 727200 or email enquiries@employeemanagement.co.uk for expert guidance and support in negotiating employee exits while protecting your business.
