Springhouse Solicitors

New ACAS code of practice on settlement agreements

ACAS is currently consulting on a new Code of Practice designed to give guidance on discussions around the possible termination of an employee’s employment.

There are a wide variety of situations where an employer (or an employee) might suggest that employment comes to an end by mutual agreement, usually in return for a payment to reflect at least statutory and contractual rights. Such an agreement would usually be wrapped into what is now known as a Compromise Agreement. These are now to be renamed Settlement Agreements .

It can be difficult for an employer to decide how to suggest a possible termination of employment. Sometimes this will occur in the midst of an existing dispute or a tribunal claim; or as part of a redundancy process. In other cases, the employer may have concerns about the employee’s conduct or performance, and be considering formal proceedings.

If an employer calls a member of staff in and suggests their departure from the company, as if this is a foregone conclusion, the employee may well consider a claim for constructive dismissal.

While such a discussion will often be without prejudice so that it can’t be referred to in court, this protection can be overridden if this is the first time the employee has heard that there is an issue; or if the employer has behaved improperly.

The proposed ACAS Code is helpful in that it offers employers and employees guidance on how to conduct settlement discussions of this type, and recommends best practice.

The Code is designed to complement a change in the law which will make it clear that settlement discussions around the termination of a person’s employment cannot be referred to in any unfair dismissal proceedings brought before a tribunal.

ACAS suggests that:

The legal change, combined with the Code, will offer employers a degree of protection around broaching the suggestion that an employee should depart – particularly in the context, say, of performance or conduct issues where no formal process has started.

Note that the exclusion from referring to the discussions will only apply to normal unfair dismissal cases. It will not apply:

Thus the margin of protection around this type of discussion is limited and employers are advised to seek legal advice before putting a proposal forward.

ACAS has put together some template letters for use by employers in setting out their proposals, and seeks views on whether these should be included in the Code. Our view is that the templates, while not covering every eventuality, will offer assistance to employers in ensuring that any discussions are conducted appropriately.

The new draft Code does not seek to offer any guidance on what sums employers might offer as part of discussions towards a Settlement Agreement.

Consultation around the draft Code ends in April 2013.