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What are pre-termination negotiations and how do I use them successfully

16 September 2013

Pre-termination negotiations have been introduced on 29 July 2013. They are a new concept intended to give employers greater flexibility in managing staff. 

What are pre-termination negotiations?

A PTN is an offer or discussion which takes place with a view to the employment being terminated on terms agreed between the employer and the employee.

A PTN is inadmissible in most unfair dismissal claims provided that there is no “improper behaviour” (explained below). The exception is dismissals which are “automatically unfair”, such as where the reason for dismissal is whistleblowing or is a reason connected with statutory maternity, paternity or adoption leave.

When and how do I have a pre-termination negotiation?

ACAS has produced a Code of Practice on Settlement Agreements (the ACAS Code) which is not mandatory but will be taken into account by Employment Tribunals. It gives guidance about the process that should be followed. ACAS has also produced non-statutory guidance and optional template letters.

Initial offer

PTNs can be initiated by either the employer or employee, although the majority are likely to be initiated by the employer. The initial proposal does not need to be in writing, although written proposals will reduce misunderstandings between the employer and the employee.

Meeting (optional)

A meeting to discuss the proposal is not essential, but if there is to be one the ACAS Code states that it should be “at an agreed time and place” and that an employer should allow an employee to be accompanied by a work colleague or trade union official or representative. This seems to suggest that ACAS envisages an employee being given advance notice that the employer wishes to have a PTN. 

However these requirements are not in the legislation itself, so it is unclear what the effect of breaching them would be and whether this would constitute “improper behaviour”. Until we see how Employment Tribunals treat these issues, best practice is likely to be to formally invite employees to any PTN meeting in a similar way as you would invite them to a disciplinary or grievance meeting. 

ACAS’ suggestion that employees should be allowed to be accompanied may understandably frustrate employers who prefer not to discuss a financial offer with a colleague present, given the desire to keep such settlements confidential.

Provide written settlement agreement to employee

Compromise agreements have been renamed “settlement agreements”. They are the same document, just with a new name. Therefore, a settlement agreement must be in writing in order to waive statutory claims and the employee will need to take advice from a “relevant adviser” in the same way as for a compromise agreement.

The ACAS Code states that an employee should be given a reasonable period of time to consider the agreement and seek legal advice. According to the ACAS Code, this would normally be at least 10 calendar days, although the parties can agree to do it quicker if they wish.

What is improper behaviour?

The legislation doesn’t set out what is improper behaviour. This will therefore be decided gradually as Employment Tribunals consider cases. The ACAS Code does give some examples of behaviour that will be improper, as follows:

  • 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
  • victimisation
  • unlawful discrimination
  • putting undue pressure on a party, for example:
    • not giving them reasonable time to consider the offer
    • an employer saying before a disciplinary process has begun that the employee will be dismissed if the settlement proposal is rejected
    • an employee threatening to undermine the employer’s public reputation if the employer doesn’t sign the agreement (with an exception where certain whistleblowing legislation applies).

However, it would not be improper to set out in a neutral way the reasons that have led to the proposed settlement agreement, or to factually state the likely alternatives if an agreement is not reached, including the possibility of starting a disciplinary process.

Where there is improper behaviour, the PTN will only be inadmissible to the extent that the Judge considers it just.

In contrast to the ACAS Code on Disciplinary and Grievance Procedures, there is no increase in compensation as a result of an employer failing to follow the ACAS Code on Settlement Agreements. However there is potential for a breach of the latter Code to be a breach of the former, which may result in a compensation increase. For example, where an employer who not followed a fair disciplinary process states at a PTN that the employee will be dismissed for poor performance if the employee does not accept the offer. According to the ACAS Code on Settlement Agreements, this would be improper behaviour and the conversation would therefore be admissible to the extent that the Tribunal considered just. The employee could then point to the conversation to argue that the employer failed to follow the ACAS Code on Disciplinary and Grievance procedures.

Should I use PTNs?

PTNs are a useful tool for employers seeking to manage out unwanted employees, particularly where the reason is performance or conduct. However, it is important to recognise the limits of PTNs and the potential for the conversation to be referred to at an Employment Tribunal if you stray outside these limits. You should therefore be cautious about what you say and should not make unnecessarily inflammatory comments, particularly if they might be untrue or discriminatory.

In particular, remember that:

  • a PTN will only be inadmissible for “ordinary” unfair dismissal claims. It would be admissible for the purpose of any other claims by the same individual, such as discrimination, unlawful deductions from wages or breach of contract.
  • if there is any "improper behaviour", the Judge can admit evidence about the conversation to the extent that he or she considers it just to do so.

You may therefore commence a PTN believing it to be protected only to later find that the employee alleges discrimination and is therefore entitled to refer to the PTN for the purpose of that claim. There is also the risk of additional disputes (“satellite litigation”) with the employee about whether there has been improper behaviour, particularly until judicial guidance develops.

Finally, you should be aware that an employee may assert constructive dismissal as a result of the PTN, on the basis that the comments made at the PTN demonstrate that there has been a breakdown of mutual trust and confidence. Provided there is no “improper behaviour” by the employer, the conversation would be inadmissible for unfair dismissal purposes. However, a constructive dismissal could have other impacts, such as on deferred remuneration schemes or by rendering restrictive covenants unenforceable.

Overall, the introduction of PTNs is helpful, but the limits of PTNs may catch many employers out in practice, particularly until there is clearer guidance from Employment Tribunals about what constitutes improper behaviour. Used properly and in the right circumstances, PTNs can be an important tool to assist with managing out employees and encourage earlier settlement.

Can’t we just speak without prejudice?

“Without prejudice” discussions still exist alongside PTNs. Without prejudice discussions can take place even where the potential claims are broader than just “ordinary” unfair dismissal, but the parties must be seeking to settle an existing “dispute” (“dispute” has a particular legal meaning). This causes problems for employers because there is often no existing dispute when they want to discuss termination (for example, the employee may not even realise there is a problem).

The risk of having a conversation that is not without prejudice or a PTN is that what is said may suggest that the decision to dismiss has been pre-determined and is therefore unfair. Prior to PTNs, employers often purported to have “without prejudice” discussions with employees but in many cases the discussion was not actually without prejudice because there was no existing dispute. These conversations could therefore be used by an employee to claim constructive dismissal and could be referred to at an Employment Tribunal.

Now that PTNs exist, where possible it will generally be worth seeking to rely on any settlement conversation being both without prejudice and a PTN as it may fail the test for without prejudice but pass the test for a PTN, or vice versa.

For more information please contact Christopher Bushnell, Associate

T: +44 (0)20 7427 6427