Do you use 'protected conversations' as way of trying to agree exit terms?

It's been over 10 years since the law was changed to allow employers to have confidential discussions with their staff to end their employment, without the parties being in dispute and without having to worry that those discussions will come back to haunt them if they can't reach agreement. Despite that, there's not been that many binding decisions which have examined these rules in detail. 

In Gallagher v McKinnon's Auto and Tyres Limited, the EAT had to decide if an employee who was misled about the reasons he had been asked to attend a meeting, and then only given 48 hours to consider a settlement offer, was entitled to refer to those discussions to support his claim that he had been unfairly dismissed.

The law

An employer that wants to exit an employee from their organisation will usually enter into settlement discussions on a without prejudice basis. If negotiations fail, those conversations can't be referred to in any subsequent litigation. The underlying principle behind that policy is to encourage parties to settle their disputes without having to go to court. But, in order to apply, the parties must be in dispute. This means that litigation must have started, been threatened or is likely to take place if the parties can't reach agreement. If the parties aren't in dispute, their negotiations won't be protected even if they use the expression 'without prejudice'. 

This makes it difficult to address conversations about termination. In 2013, Parliament amended the Employment Rights Act 1996 to introduce a mechanism to allow employers to have confidential discussions with their staff about agreeing the terms of their exit even if they weren't in dispute. If those discussions fail, neither side can refer to them in any subsequent tribunal litigation.

These discussions and the legal protection that sits around them only applies to ordinary dismissal claims. They can't be used if the reason why the employer wants to terminate an employee's employment relates to any other type of issue or claim, such as discrimination or whistle-blowing.

There are some other exceptions too. A tribunal can admit these conversations into evidence where there has been ‘improper behaviour’. Acas has produced a Code of Practice on Settlement Agreements which tribunals must take into account and separate guidance which they don't (but might be relevant). The Code of Practice sets out a non-exhaustive list of behaviour that is likely to amount to ‘improper behaviour’. That includes:

• not giving an employee enough time to consider a written offer; and
• telling an employee that if they don't agree to the offer, they will be dismissed.

Facts

Mr Gallagher was employed as a branch manager. He had a period of illness which lasted for approximately two months and, during his absence, his role was covered by directors of the business. As a result they decided they didn't need a branch manager and invited Mr Gallagher to a meeting to discuss his return to work. 

When Mr Gallagher arrived, the directors briefly asked him about his health and then offered to terminate his employment in exchange for £10,000 on a without prejudice basis. One of the directors said that if he rejected that offer they would “go through a redundancy procedure”. They gave him 48 hours to consider it.

Mr Gallagher was taken aback by the discussion. After he returned home, he asked for a breakdown of the financial offer (which the business provided) but he did not say whether he accepted or rejected it within the 48 hours he had been given. 

As a result he was put through a formal process and was ultimately dismissed for redundancy. Mr Gallagher alleged that he had been unfairly dismissed and relied on the ‘without prejudice’ conversation to support his claim. The employer argued that this conversation was protected under s111 ERA and the tribunal held a preliminary hearing to determine this point. 

The tribunal judge decided that the conversation was protected and could not be admitted into evidence. Mr Gallagher appealed.

EAT decision

He argued that the tribunal's decision was perverse and couldn't stand because his employer had exerted undue pressure on him to agree to the proposal contrary to the Acas Code of Practice:

• by saying that he had to accept it or he would be made redundant;
• misleading him about the reason for the meeting; and
• only giving him 48 hours to respond.

The EAT rejected each of these submissions for the following reasons:

It was not inevitable that Mr Gallagher would be dismissed if he didn't accept the offer as the employer would go on to explore whether he could be deployed to a suitable alternative role. The tribunal accepted that the directors did not tell Mr Gallagher that he would be made redundant if he didn't agree - only that a redundancy process would follow. 

It also considered the impact of the Code of Practice which discussed undue pressure in the context of a disciplinary process, not a capability or redundancy one. Mr Gallagher's scenario was very different to a disciplinary situation where an employer hasn't conducted an investigation. The EAT said that an employer who says that an employee will be dismissed for misconduct if they don't accept a settlement proposal is effectively saying that the outcome of any investigation and disciplinary process has already been decided. And, in that situation an employee is more likely to feel pressurised into agreeing the settlement on offer because they know what will happen if they refuse. That's likely to amount to improper behaviour.

The EAT accepted that inviting Mr Gallagher to a meeting to discuss his health and then launching into a settlement discussion wasn't fair - but that didn't make it improper. The meeting itself was calm and Mr Gallagher had time to discuss the proposal with his family. 

The Code suggests that employees should have 10 days to consider whether to accept a written settlement offer. Here Mr Gallagher had a verbal offer and was provided with a breakdown of how the business had arrived at the settlement figure afterwards. The EAT said that if he had accepted this, or tried to negotiate, his employer would have put its offer in writing for him to consider. It accepted that another judge may have reached a different decision but that didn't mean that this judge was wrong. He had properly considered the issues and had reached an appropriate decision.  

Our tips for having a successful protected conversation

This decision suggests that employers may have rather more leeway when embarking on protected conversations that we originally believed. That said, we would always recommend that you are open and honest about the reason for wanting to meet an employee and give them a decent amount of time to consider your proposal. 

This checklist will help you to decide if a settlement discussion is the right way to deal with the problem and how to minimise risk if you do so.

1. Agree who within your organisation can initiate a settlement discussion and whether they need to consult with HR or a more senior manager before doing so. Make sure that authorised individuals are properly trained and understand how to safely have a settlement discussion.
2. Decide whether a settlement discussion is the best way to deal with the situation and consider the implications for the employment relationship if an agreement cannot be reached. 
3. Obtain all relevant information about the employee.
   1. What are the background issues?  Are you absolutely confident, for example, that there is no unlawful discrimination, victimisation or any other potential issue other than conduct, capability and redundancy? 
   2. Does the employee have any live warnings on their record? What are these for?
   3. If it's a capability issue, have you already started an informal or formal performance procedure?  Why do you think it is not working? 
4. Avoid having a settlement conversation out of the blue.  There must be a clear basis for making the approach. If the employee has no hint that their behaviour or conduct is unacceptable, they are likely to be defensive and you are unlikely to achieve an agreed settlement.
5. Ask the employee to attend a meeting in writing. Explain why you want to have it, the fact it will be without prejudice and will give you both the opportunity to have a frank discussion about the issue/s.  
6. Acas recommend that employers should allow employees to be accompanied at the meeting by a trade union official, representative or a work colleague, but you are not obliged to do so.
7. At the start of the meeting remind the employee what you are there to discuss and that your conversation can't be used in any, subsequent legal proceedings. 
8. Be careful about the language you use and the impression it may give to the employee. Do not:
   1. hreaten the employee “take the offer or else you will be sacked.”
   2. Appear aggressive, impatient or condescending “I’ve only got 10 minutes to discuss this with you” etc.
   3. Tell the employee that they have to make up their minds there and then or the offer will be withdrawn.
9. Negotiate sensibly and decide in advance what financial offer should be made and the maximum that you are prepared to pay. You'll need to consider the employee's length of service; how long will it take before you will be in a position to fairly dismiss them by going through a fair process; their notice period and any other contractual entitlements, including any untaken annual leave. You may also want to consider the costs involved in dealing with any potential tribunal or court claim if the issue is not settled.
10. If the employee is willing to negotiate, comply with the statutory provisions regulating settlement discussions and agreements. 
    1. Put your offer in writing (by way of a settlement agreement).
    2. Allow the employee at least 10 days to consider it (unless the employee agrees to a shorter period but do not pressurise them to do so).
    3. Allow the employee to take independent legal advice (and be prepared to pay a reasonable sum for this if agreement can be reached).
11. If agreement cannot be reached, you will need to continue or start your internal processes to deal with the issue.

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