Confidentialty and Settlement Agreements

This guide covers the new ‘Confidential Pre-termination Negotiations as well as the general confidentiality (gagging) and bad mouthing clauses often found in a settlement agreement

Pre-Termination Negotiations – why the change?

The aim is to encourage employers and employees to have frank conversations about the employment coming to an end without these being relied on in a Tribunal.  For example, the employee will not be able to argue, in a tribunal,  that the employer decided to dismiss the employee 6 months earlier because this possibility was raised during a pre-termination negotiation.

The ‘without prejudice’ rule, which prevents settlement discussions being relied on in the Tribunal, has the same effect but only applies where there is an existing dispute.  

This only applies to unfair dismissal claims, not discrimination, whistleblowing  or other automatically unfair dismissal claims. 

The provisions do not apply where there is improper behaviour by either party and the tribunal decides that the negotiations can be relied on in the Tribunal. 

When will the change take place?

29 July 2013

What is a pre-termination negotiation?

It covers any offer made or discussions held, before the termination of the employment, with a view to it being terminated on terms agreed between the employer and employee. 

What is a settlement agreement?

A settlement agreement is the new name for a compromise agreement.  It is a legally binding agreement between employer and employee,  which settles all employment disputes on agreed terms.  Commonly, the employer will pay the employee a sum of money to leave his or her job and not bring any legal claim against the employer.   

Who can suggest a settlement agreement?

Either the employer or employee but it will usually be the employer.  

Can the employee be asked to leave immediately?

The ACAS Code says that the parties must be given a reasonable period of time – at least 10 days – to consider an offer of a settlement agreement and get independent legal advice.  

What is Improper behaviour

Where the employer or employee behaves improperly the other party may be able to rely on the discussion if a claim is made.  Examples of improper behaviour given in the ACAS code are : 

All forms of harassment that include intimidation through the use of offensive words or aggressive behaviour;

Physical assault and other criminal or wrongful behaviour;

Victimisation of people because they have complained of a breach of a statutory right;

Discrimination because of age, sex, race, disability, sexual orientation, religion or belief, transgender, pregnancy and maternity and marriage or civil partnership;

Putting undue pressure on a party; this includes

  • not allowing the employee at least 10  working days to consider an offer;
  • reducing the offer during the 10 working days an employee has to consider the offer;
  • an employer saying, before any disciplinary process has begun, that if the offer is rejected the employee will be dismissed;
  • An employee threatening to undermine the employer’s reputation unless the employer signs up.

What is the effect of improper behaviour?

Where a tribunal finds there has been improper behaviour, any proposal of a settlement agreement or discussions relating to it will only be confidential if and in so far as the tribunal considers it just.  

There is bound to be uncertainty about what is ‘improper’ behaviour.  An employee may say that the employer behaved aggressively, for example by threatening dismissal and no compensation if the settlement agreement is not accepted.  It is for the tribunal to decide whether the behaviour is improper and whether it is just and fair to allow it as evidence before the tribunal. 

Improper behaviour has no effect on the validity of a settlement agreement. 

What if a settlement agreement is not reached?

If the agreement is rejected and there has been no improper behaviour, the parties may go through a formal disciplinary and grievance procedure, ignoring the confidential discussions.   

As the ACAS Code says, it is important that employers follow a fair process because if the employee is subsequently dismissed, failure to do so could be grounds for an unfair dismissal claim. 

For example

In August , an employer tells an employee that she is likely to be made redundant in October and asks if she wants to leave early with compensation.  She does not accept the offer and the employer goes through the redundancy procedure.  The employee wants to argue that the employer had made up its mind to make her redundant back in August so the redundancy process was really a sham.  However, this conversation is ‘protected’ so she cannot rely on the discussions in June to argue that the redundancy was unfair. 

Confidentiality (gagging) and bad mouthing clauses

Almost all agreements include confidentiality and bad mouthing clauses.  The confidentiality clause should only relate to the terms of the agreement and surrounding circumstances leading up to the agreement.  However, it is important that you can tell a future employer why you left the job so this should be agreed and included in the agreement.  Commonly, the reason is redundancy or that the employee has decided to move on. 

Example clause

You agree and undertake, and the employer agrees to use its reasonable endeavours to procure, that none of its officers or employees shall: 

(a) make or publish any statement to a third party concerning this Agreement, the dispute settled by it or the circumstances surrounding the termination of your employment; or

(b) make or publish any derogatory or disparaging statement, or do anything in relation to the other, and in your case in relation to your employer or its officers or employees, which is intended to or which might be expected to damage or lower their respective reputations;

provided that the parties will not be prevented from making a disclosure for the purposes of seeking legal advice in relation to this Agreement and in your case to your spouse, or partner, or civil partner, provided such person agrees to maintain confidentiality, or for the purposes of seeking alternative employment.  

Note: the bad mouthing clause should only apply to the future.  Some agreements include a warranty (promise) that the employee has never (in the past) made derogatory comments about the employer. As most employees make rude comments about their employer at some stage, it should be avoided, if possible.

Your contract of employment and restrictive covenants

You should check your contract to ensure you understand any continuing obligations.  Some employees have a restrictive covenant preventing him/her from working in a similar job or dealing with the same clients for a period of time, commonly between 6 and 12 months.  If the restriction will prevent you getting another job, you should ask for the restriction to be waived or the period reduced.  

Remember time limits

Any claim to the tribunal must be lodged within 3 months of the end of the employment or act of discrimination, or within 6 months in equal pay claims. It can be extended in certain circumstances but it is not worth taking the risk unless you are already out of time.

Tribunal Fees

Fees will be payable on any claim lodged on or after 29 July 2013. There is power to waive the fee for those on a low income, but you have to make a remission application, giving details of your and your partner’s income.  

Written by Camilla Palmer of Leigh Day on 24 July 2013


IMPORTANT: The contents of this page are general guidance only and shoul regarded as consting legal or other ad