Key takeaways

• The employment tribunal did not err in finding that evidence of pre-termination negotiations was inadmissible under s111A of the Employment Rights Act 1996. 
• It was entitled to find that the employer's behaviour (which included making a verbal settlement offer to the claimant at a return to work meeting, offering 48 hours in which to accept it, and warning that a redundancy process would commence if he did not) was not improper, nor did it put undue pressure on the claimant on the facts of the case.
• The case is helpful for employers, especially where mistakes may have been made in the early part of the process, as it suggests that the EAT places the threshold for improper behaviour at a higher level than might have previously been thought, and that tribunals are entitled to consider all the circumstances before coming to a decision. It also draws a distinction between the time put forward for acceptance of the offer in principle and the period of time required to conclude written settlement terms.
• That said, any employer considering the use of either without prejudice or s111A pre-termination negotiations in a workplace discussion should usually follow the Acas Code of Practice on Settlement Agreements and consider taking legal advice on whether those discussions will be inadmissible. 
• Care should be taken as to how such offers are presented as the rules relating to pre-termination negotiations only relate to ordinary unfair dismissal and other complaints may be raised which fall outside of its scope.
• For advice or to discuss what this means for you and your business, please get in touch with your usual Baker McKenzie contact.

In more detail 

The common law principle of "without prejudice" generally protects discussions around settlement where there is an actual or contemplated legal dispute being brought into evidence in any later claim. However, this does not apply in circumstances where no legal dispute is yet contemplated. 

Section 111A of the Employment Rights Act 1996 permits employers and employees to hold pre-termination negotiations ("protected conversations") that are not admissible in ordinary unfair dismissal claims unless (under s111A(4)) the employer has behaved improperly. Protected conversations are therefore often used where the employee may face a disciplinary, capability or redundancy process to see if it is possible to reach an agreed settlement instead. Some caution is still advised around the use of s111A, since its protection applies only to ordinary unfair dismissal claims and not, for example, to those for automatic unfair dismissal or for discrimination. It is important that employers do not say anything during the protected conversation that might suggest that the outcome of the relevant process has been pre-determined.

The claimant was a branch manager and was absent from work for two months due to sickness. While he was away, the directors decided that the business could manage without a branch manager. He was invited (he believed) to discuss his return to work at a meeting on 1 August 2022. When he attended he was told that the directors would cover his duties in the future. He was offered verbally a payment of GBP10,000 for his dismissal as redundant, with 48 hours to accept. He was told that if he declined the offer, a redundancy procedure would begin.  

He did not accept the offer, was made redundant, and then brought a claim for unfair dismissal. He argued that he was entitled to bring the pre-termination negotiations into evidence because his employer had acted improperly and placed undue pressure on him by being aggressive, giving him too little time to consider the offer, and misleading him about the purpose of the meeting. 

An employment tribunal found that the discussions were pre-termination negotiations under s111A, that the meeting was conducted calmly and that the claimant was given reasonable time to consider the offer. On the facts there was no improper behaviour and that the directors had not lied about the purpose of the meeting. 

The claimant appealed to the Employment Appeal Tribunal (EAT). He argued that his employer had breached the Acas Code of Practice on settlement agreements when it put undue pressure on him to accept an offer, and that the employment tribunal's decision was perverse.

The EAT dismissed his appeal. It held that there was no error of law and nothing perverse in the tribunal's conclusions on the facts.  

Telling an employer that a redundancy process would begin if he did not accept the offer was not the same as telling him he would be dismissed if he did not accept. A redundancy process does not always result in the dismissal of the at risk employee as the employer must explore alternative employment opportunities.

The directors had not lied about the purpose of the return to work meeting and while it might not have been fair to offer him an unexpected settlement offer at the meeting, something may be unfair but not improper. The EAT also acknowledged that discussions about an employment process (such as a potential disciplinary) may lead to a discussion about settlement.

When considering whether the claimant was put under undue pressure, the employment judge was entitled to take into account all the relevant circumstances, including factors such as the calm manner in which the meeting was conducted, that he was promptly given a breakdown of how the figure had been reached, and that he had time to discuss the offer with his family.

The Acas Code states that parties should be given a reasonable period of time to consider the proposed settlement agreement, and that what constitutes a reasonable period of time will depend on the circumstances of the case. According to the Code, at least 10 calendar days should generally be allowed to consider proposed formal written terms of a settlement agreement and to obtain independent legal advice, unless the parties agree otherwise. The EAT noted that another employment judge might have come to a different decision, but it was not perverse to draw a distinction between "formal written offers" to which the 10 day period would be relevant, and the verbal offer made to the claimant. Had he agreed, he would then have been sent a formal offer to which the 10 day minimum period would have applied. 

The tribunal will now hold a separate hearing to consider the claimant's unfair dismissal claim, without regard to the pre-termination negotiations. 

Gallagher v McKinnon Auto Tyres Limited [2024] EAT 174