Was an employee allowed to refer to a “Protected Conversation” to support his claim of unfair dismissal?

When are off the record conversations really ‘off the record’?

This was the question before the Employment Appeal Tribunal in the case of Gallagher v McKinnon Auto and Tyres Ltd where Mr Gallagher was appealing against the Tribunal’s decision that the contents of his “protected conversation” with his former employer, were inadmissible as evidence in his unfair dismissal claim.

What is a protected conversation?

A “protected conversation” is a conversation held between an employer and an employee to discuss terms on which the parties may part ways that cannot be referred to by either party in any future unfair dismissal claim.       

It is similar to having a “without prejudice” conversation but with a few important differences.  The main difference is that settlement negotiations are only protected by “without prejudice” confidentiality if the discussions are a genuine attempt to settle an existing dispute between the parties.   For the parties to have a “protected conversation” there doesn’t need to be a pre-existing dispute which means that the parties can discuss exit terms at an early stage, before a potential dispute arises.        

The expression of having a “protected conversation” refers to the statutory mechanism for reaching settlements that was introduced by the Employment Rights Act 1996 in 2013 in order to address the limitations of the “without prejudice” rule; namely to allow employers and employees to have confidential discussions about an employee’s exit from the business, in circumstances where a dispute does not (yet) exist, without fear that these could later be relied upon as evidence in future unfair dismissal proceedings. 

Section 111a of the Employment Rights Act 1996 provides that “pre-termination negotiations” – defined as those where any offer is made or discussion is held before the termination of an employee’s employment, with a view to it being terminated on agreed terms – are inadmissible as evidence in a subsequent unfair dismissal claim unless there has been “improper behaviour”.

Whether anything said or done in the course of pre-termination negotiations is “improper” is ultimately matter for the tribunal to decide but the guidance accompanying the Acas Code of Practice on settlement discussions contains some examples.  These include where there has been:

• Harassment, bullying and intimidation, including through the use of offensive words or aggressive behaviour.

• Physical assault or the threat of physical assault and other criminal behaviour (e.g blackmail).

• Discrimination or victimisation relating to any of the protected characteristics. 

• Undue pressure applied to a party.

According to the guidance, undue pressure could include not giving the employee reasonable time to consider the offer (the Acas Code of Practice recommends 10 calendar days from receiving a written settlement offer) or telling an employee, before any form of disciplinary process has started, that they will be dismissed if they reject a settlement offer. 

The Acas guidance makes it clear, however, that the rule against “improper behaviour” does not prevent an employer from setting out the likely alternatives if an agreement is not reached, such as the possibility of commencing a performance management process. 

If the Tribunal finds there has been “improper behaviour” in relation to any offer made or discussion held as part of any settlement negotiations, it will be admissible as evidence in an unfair dismissal case unless the Tribunal considers that would be unjust.  

It is worth noting that the “protected conversation” rule under section 111A of the Employment Rights Act 1996 only protects discussions from being disclosed in relation to unfair dismissal claims.   The statutory protection does not extend to claims of automatic unfair dismissal, such as dismissal for whistleblowing or for asserting a statutory right.   It also does not cover discrimination claims under the Equality Act 2010.    That means that settlement discussions regarding potential discrimination claims, or automatic unfair dismissal claims will have to rely on the “without prejudice” principle. 

What was the case about?  

Mr Gallagher was employed as a branch manager by McKinnon Auto and Tyres Ltd for 5 years.  In 2022, he was on sickness absence for two months. While he was absent, his employer covered his role successfully – so much so that they considered they no longer needed a branch manager.   As a result, before Mr Gallagher was due to return to work, one of the directors invited Mr Gallagher to a meeting that was described as a “return to work” meeting.   However, at the meeting, instead of discussing his return to work, Mr Gallagher was offered an enhanced redundancy payment in return for signing a settlement agreement.   The proposal was described as “off the record” and “without prejudice” and Mr Gallaher was told he had 48 hours to accept the offer otherwise the company would go through a redundancy procedure.   

Mr Gallagher did not accept the proposal in 48 hours and was then invited to a formal meeting to discuss his potential redundancy and the availability of any alternative employment.  He was subsequently dismissed for redundancy and did not receive the enhanced redundancy payment.   

Consequently, Mr Gallagher brought a claim for unfair dismissal and sought to rely on the discussion during which his employer made him a settlement offer as evidence that his dismissal was unfair.   

There was a preliminary hearing arranged to decide whether the evidence of what was said at that meeting was admissible.   Mr Gallagher’s former employer objected to the admissibility of the evidence, arguing that it was a “protected conversation” under section 111A of the Employment Rights Act 1996.   The employer didn’t argue that the discussion was protected by “without prejudice” rule because the reality was that no dispute between the parties had arisen at that point.    The Judge found for the employer and held that both the fact of and content of the pre-termination negotiations were inadmissible. 

Mr Gallagher appealed to the Employment Appeal Tribunal on the grounds that he said his former employer had engaged in improper conduct during the “protected conversation” and therefore the discussions were admissible as evidence. 

What improper behaviour did the employee claim occurred?

Mr Gallagher argued first that he had been told by the director during the “protected conversation” that they could cover his role and that his role had been made redundant.  He said that this essentially amounted to being told that he would be dismissed if he did not accept the settlement offer.  He drew an analogy with the example of “undue pressure”, given in the guidance to the Acas Code of Practice on Settlement Agreements, of an employer telling an employee, before any disciplinary process has begun, that if a settlement proposal is rejected the employee will be dismissed for misconduct.  

His second argument was that the meeting was set up under false pretences and this, in itself, amounted to improper behaviour.   He referred to the fact he was told it was a “return to work meeting” when the true purpose of the employer was to propose terms of severance to him.  The “surprise element” of the meeting also, he said, exerted undue pressure on him.  

His third argument was based on the fact that he was only given 48 hours to accept the settlement proposal.  He said this constituted undue pressure and that the short time period was unjustifiable and fell well short of the 10 day period recommended in the Acas Code of Practice. 

Why did the Employment Appeal Tribunal decide it was not improper behaviour?

In relation to the first ground of appeal the Appeal Tribunal said it was entirely permissible for the judge in the original Tribunal hearing, having had the benefit of seeing and hearing evidence from the witnesses, to accept the employer’s evidence that Mr Gallagher was not told that he would be dismissed if he rejected the offer – only that a redundancy process would commence if he didn’t.   

The Appeal Tribunal also noted that the Acas Code analyses undue pressure in the context of a disciplinary process, not a capability or a redundancy process.  This, it said, was an important distinction because an employee is more likely to feel undue pressure to sign a settlement agreement where they are threatened (before any form of disciplinary investigation has begun) with dismissal if they don’t sign, than if they are offered a settlement because they are told that their role is redundant.  

As for the second ground of appeal, the Appeal Tribunal again upheld the decision of the original Tribunal which concluded that, whilst it may not have been fair for the employer’s directors to use a discussion about Mr Gallagher’s return to work as a pretext for raising with him the possibility of severance on agreed terms, it did not constitute impropriety to do so.  It was also held that the “initial shock” Mr Gallagher said he felt in relation to the meeting did not put him under “undue pressure” since it was found that the meeting was conducted calmly, and he had the opportunity to discuss the offer afterwards with his family.  

The final ground of appeal, which concerned the period of 48 hours’ notice given to Mr Gallagher to indicate whether he accepted the offer or not, was also judged not to constitute “undue pressure”.  

The Appeal Tribunal said that the judge in the original Tribunal was entitled to conclude, based on the relevant circumstances of the case, that giving 48 hours to accept an offer did not constitute “improper behaviour”.    The relevant circumstances included that the meeting was calmly conducted, that Mr Gallaher was given a breakdown of the figure offered swiftly after the meeting and he had time to discuss matters with his family.   The employer’s conduct did not meet the threshold of “impropriety”.   

The Appeal Tribunal also noted the 10-day minimum period recommended by the Acas Code of Practice for acceptance of a settlement proposal relates to consideration of a written offer, not a verbal offer which is what Mr Gallagher received.   Therefore, Mr Gallagher’s argument that the 48 hours’ notice he was given amounted to undue pressure because it was far shorter than the 10-day period recommended in the Acas Code of Practice fell flat. 

Holding protected conversations

The case is a useful reminder of the need to approach a protected conversation carefully and to conduct such discussions fairly and sensitively, ensuring that it is made clear to the employee than their decision on any settlement offer will not impact on any decision or action taken later.   Also, whilst there may be some limited circumstances in which a short period for acceptance is necessary, in most cases, it is advisable to give the employee a reasonable period of time to accept the settlement offer so that their decision is a considered one – and it will probably save time and cost in the long run. 

Lastly, the case highlights how important it is to comply with the Acas Code of Practice on Settlement Agreements (which Tribunals are required to take account of where it is relevant to any question arising in proceedings) and to heed the accompanying guidance which sets out principles of good practice. 

If you would like any advice or assistance on resolving workplace disputes including how to hold a “protected” or “without prejudice” conversation, please get in touch with a member of the Real Employment Law Team. 

If you would like to read the full judgement you can do here: Mr_Kevin_Gallgher_v_McKinnon_s_Auto_and_Tyres_Ltd__2024__EAT_174.pdf