Settlement Agreements & Protected Conversations

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There are times when dealing with employee issues can become:

  • High risk – from both a legal and commercial perspective
  • Stressful for all parties
  • Time consuming
  • Difficult to manage

These are the times when coming to an agreement with an employee and paying to resolve the matter are often the best ways to remove stress, risk and difficulty.

I understand that it can be a bitter pill to swallow in some cases but actually paying the employee a sum of money to walk away and not pursue matters further can often be the best outcome for your business and sanity!

Fortunately for employers there are a few ways in which you can legitimately explore settlement options without the risk that it will come back to haunt you later on.

Without Prejudice Discussions

The general legal position is that attempts to genuinely settle a dispute can take place ‘off the record’ and without one party referring to them later on as ‘evidence’ of the others ‘guilt’.

This is helpful for employers where there is already a dispute to settle, for example, if an employee raises a grievance about treatment at work, or they are in the middle of disciplinary proceedings it is certainly arguable that settlement discussions would be covered by the general ‘Without Prejudice’ rules.  

The ‘Without Prejudice’ principle means that if you are attempting to resolve a genuine existing legal dispute then the discussions can only be referred to in the Court or Employment Tribunal when it comes to the question of costs, after the case has been decided. This is why you will often see them headed as ‘Without Prejudice Save As To Costs’.

It means that if the winning party has made a settlement offer earlier on in the proceedings which was rejected they can bring the settlement offer to the attention of the Court or Employment Tribunal and argue that they should have their costs paid from the time at which they made the settlement offer. This is more relevant in proceedings in the Courts but can still be referred to in disputes in the Employment Tribunal.

Protected Conversations

In 2013 the law changed with the introduction of ‘Protected Conversations’. The idea being that employers should be able to have conversations with employees to try to resolve issues before they turn into actual disputes.

Prior to the change Employers would often avoid having discussions with employees whilst they were still employed for fear that the conversation could be used against them if, for example, they took steps to discipline or dismiss an employee later on.

Now employers can have a protected conversation and provided they follow certain guidelines (set out below) the conversation cannot be referred to in any subsequent claim for unfair dismissal.

Please note that the rules regarding protected conversations only apply to Unfair Dismissal claims and not to any other claim, such as Discrimination. Employers would have to rely on the general ‘Without Prejudice’ principles (described above).

It is also important to note that any ‘improper behaviour’ in the course of the discussions can still be referred to in any later Employment Tribunal proceedings. Therefore, it is important to behave fairly in the discussions, be prepared and stick to the key points, ensuring that you make it clear that the employees decision on the offer will not impact on any decision or action taken later.

The employee should know that they are free to consider the offer and reject it if they wish with no impact or effect upon them.

The Process

The process I recommend that you follow during a ‘Protected Conversation’ is as follows:

  • Introduce those present at the meeting.
    An employee does not have the legal right to be accompanied at this meeting, however you may decide that it will assist discussions if they are accompanied by someone appropriate. Many employers however would prefer the settlement discussions are confidential and for this reason do not permit employees to be accompanied by colleagues.
  • Inform the employee that the meeting is to be ‘without prejudice’ which means that it is off the record and it is intended that the discussions are covered by section 111A of the Employment Rights Act 1996.


  • Explain that this means that the offer and any subsequent discussion or negotiations may not be used as evidence in any subsequent unfair dismissal claim.


  • Explain the reason for the discussion, for example;
    You do not think that they are performing to the required standards or that they will be likely to meet the required standards any time soon. Therefore, in order to avoid the need to go through a length and stressful performance management plan with them you want to offer them the opportunity to exit the business now and take a payment instead. You cannot of course predict the outcome of the performance improvement plan but if they do not meet the required targets then it is possible that it would result in their dismissal in 3-6 months’ time in any event.
    You have decided that it is necessary to make redundancies in their department and although you have not started the consultation process or selection you feel that it is likely that based on the potential selection criteria they will be selected as the person to be made redundant. Rather than put them through the stress of the redundancy consultation and process you wanted to offer the chance to accept redundancy now and an enhanced payment for early settlement. You cannot of course predict the outcome of a full consultation and selection process, but if they are selected they will be made redundant with statutory payment only.
  • Inform the employee that if they decide to reject the offer it will not impact on them negatively and you will of course follow a fair and reasonable process in future.


  • Inform the employee that they will be required to obtain legal advice on the terms offered and if accepted you will contribute towards their legal costs, but only if agreement is reached. (Although a contribution to legal costs is not mandatory it is standard practice).
  • Tell the employee how long they have to consider the offer. The period they have should be reasonable and as a general rule ACAS recommend 10 calendar days.
  • If you decide that you do not want the employee to work whilst they are considering the offer then tell them they are not required to attend at work and are on paid leave until the deadline for responding.
  • Inform the employee that the offer must remain confidential and they should not discuss with colleagues, however they are permitted to discuss with their legal adviser and spouse or partner.
  • Ask the employee if they have any questions. 
    I recommend you try to avoid lengthy discussions and explain that the purpose of the offer is to avoid the need to discuss or debate the issue and therefore you do not intend to get into it at this point.
  • Give the employee a letter which explains offer in principle.
    At this point you can give them just the offer details or the offer and a Settlement Agreement for them to seek legal advice on and sign. If you just provide the offer you can probably reduce the time they have to consider the offer and ask them to say yes or no in principle, if they say yes then you give them the Settlement Agreement to take and get advice.

Settlement Agreement

Employees can only legitimately settle their employment claims and waive their employment rights by agreeing settlement via ACAS (known as a COT3) or in the form of a Settlement Agreement.

The law recognises that employees are generally in a weaker bargaining position than employers and to prevent employees being taken advantage of and agreeing to waive their rights without being compensated fairly, Settlement Agreement’s must contain certain provisions and employees must obtain independent advice on the content.

Employers should take care to ensure that if they offer an employee a Settlement Agreement or settlement payment the Agreement is genuinely legally binding and contains sufficient protection for the employer otherwise you could be wasting your money.

Typical clauses in a Settlement Agreement include:

  • Confidentiality agreement relating to the employer’s information post termination;
  • Confidentiality of the agreement, therefore limiting who the employee can tell about the agreement or terms;
  • Tax indemnity so that the employee is responsible should HM Revenue & Customs decide tax is payable on any tax-free payments (genuine compensation payments under £30,000 can generally be paid without deductions for tax and NI);
  • Promises from the employee not to make derogatory or defamatory statements about the employer;
  • Reference to and re-stating post termination restrictions in the employee’s contract of employment;
  • New post termination restrictions (often negotiated separately and for an additional payment);
  • Assurance from the employee that they have not done anything in breach of their contract;
  • Promise to assist with any issues that arise post termination.

Up until July 2013 Settlement Agreements were known as Compromise Agreements, they were renamed to make it easier for parties to understand their purpose.

Want to get some advice? Do you have questions?

If you would like any advice or assistance with resolving employee disputes or offering a Settlement Agreement then please get in touch. We can often provide you with a  fixed fee quote for the preparation of a Settlement Agreement and relevant guidance to assist you, thereby keeping your costs under control.

You can contact us at our offices in Eastleigh, Salisbury or the Isle of Wight or we can assist you wherever you are in the UK.

01983 897003, 023 8098 2006 or 01722 653001

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