Protected conversations and settlement agreements

8 February 2013

Since coming to power in May 2010, the coalition government has been on a mission to change existing employment laws, the aim being to give confidence back to business owners in the UK.

The government sought to achieve this through the cutting of 'red tape', which it hoped would encourage business owners to take on new employees without fear of expensive obligations and legal liabilities.

One of the key proposals introduced in this regard was the concept of 'protected conversations', whereby discussions about an employee's dismissal could not be used in subsequent legal proceedings.

This went hand in hand with the government's aim of encouraging the use of "settlement agreements" to deal with employment disputes before litigation begins.

Settlement agreements
A long-established method of settling employment disputes outside of legal proceedings (with which many employers and managers will be familiar) is under a 'compromise agreement'. Under such agreements, employees usually waive their right to take legal action against the employer in return for a payment.

Provided these agreements meet certain requirements, they will be effective in settling the majority of legal claims an employee may have. They have, therefore, become a very popular way of dealing with employment disputes, especially where employers are keen to avoid the expense or negative publicity associated with employment tribunal proceedings.

In light of their potential to save significant costs for employers and the tribunal system, by reducing the number of claims, the government wants to encourage the wider use of these agreements. Its first proposal to achieve this aim is to rebrand them as 'settlement agreements'. The change in name appears to simply be an attempt to make the agreements more appealing to employers or employees who may otherwise be discouraged by the idea of compromising.

While the template agreements produced by the government will be a useful starting point for employers, the process of settling employment disputes can still be complicated. Employers must ensure that any settlement agreements they enter cover all possible claims that the employee may have. Without access to HR or legal advice, some managers may find it difficult to identify all possible claims the employee may have, which, in the worst case, could leave an employer exposed to claims which it thought had been settled.

Protected conversations
The government's second proposal is to give employers greater freedom to pursue settlement outside of legal proceedings, by ensuring that conversations about settlement cannot be used in evidence in any future claim brought by the employee. This would prevent any disadvantage being caused to an employer who has tried to deal with an employment problem by way of a settlement agreement.

To assist employers in entering into these conversations, the government proposes that ACAS (the independent service that deals with employment disputes) will publish template agreements, as well as guidance on how to financially value claims an employee may have.

The government's proposals should increase employer confidence in the use of settlement agreements (and therefore at least partially achieve the government's cost-saving aims).

However, the proposals will not offer blanket protection to employers as the protection will only apply in unfair dismissal disputes. This means any conversations about discrimination complaints, for example, would not be protected. It is also proposed that there will be no protection where an employer behaves improperly during such conversations.

It is not clear what constitutes 'improper behaviour', although the most likely allegation of improper behaviour may arise if an employer has said something discriminatory during one of these conversations, such as suggesting that an older employee should retire.

Managers should therefore be very careful when dealing with situations in which 'protected characteristics' such as age, race, sex or disability are involved. It may also be useful to take
detailed notes of conversations to defend any suggestion of improper behaviour.

The government plans to introduce these changes in summer 2013, although a precise date is not yet known.

The introduction of protected conversations should be welcomed as a positive step towards encouraging the wider resolution of disputes without recourse to legal proceedings. However, there are a number of exceptions to the protection, which arguably water down the proposals.

Lame duck proposals?
As explained above, the protection relates only to unfair dismissal claims. Therefore, conversations about automatically unfair dismissals (such as in relation to whistleblowing) or discrimination disputes will not be protected. Protection will also be excluded where the employer has behaved 'improperly' during any such conversations, although there is no definition of what may constitute 'improper' behaviour.

There is, therefore, likely to be litigation about whether or not a particular conversation is, in fact, protected. This would obviously defeat the purpose for which the concept is proposed. Many smaller employers and some managers, who perhaps may operate without taking good legal advice, may therefore avoid relying on the protection altogether due to fear that they would fall foul of one of the exceptions.

Some employers who do engage in such conversations may later face legal consequences because that conversation was not, in fact, protected. Again, this would defeat the aims identified by the government.

Gareth Matthews is an associate at Eversheds LLP