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Settlement agreements 3C

Settlement agreements and pre-termination discussions

Handling pre-termination discussions appropriately, whilst ensuring that everyone’s rights are protected, can be challenging.

Our specialist team is on hand to help you navigate the complex regulations concerning such discussions and advise you on Settlement Agreements resulting in the termination of employment.

Settlement agreements

Here’s what you need to know:

  • Formerly Compromise Agreements
  • One way of managing issues in the workplace
  • Provide greater flexibility and an ability to resolve an issue quickly to the satisfaction of both employee and employer
  • Legally binding agreement
  • Employer will usually pay compensation and other consideration or benefits on an employee’s departure from the business, in return for employee’s agreement not to commence or continue employment related claims against the company
  • No need for lengthy procedures
  • Not all claims can be waived in a Settlement Agreement. Claims which can be waived are:
    • Unfair dismissal
    • Statutory redundancy payments
    • Unauthorised deductions from wages
    • Maternity, paternity, adoption and parental leave
    • Flexible working
    • Working time or holiday pay
    • The national minimum wage
    • Equality of terms
    • Direct or indirect discrimination, victimisation or harassment related to one of the nine protected characteristics under the Equality Act 2010 (age, disability, gender reassignment, marriage or civil partnership, pregnancy or maternity, race, religion or belief, sex, or sexual orientation)
  • Voluntary and can be halted at any time by either party
  • Can be proposed by both employee and employer
  • Certain formalities need to be complied with
  • Correspondence can be without prejudice until a binding agreement is in place
  • Offer fixed fee for basic SA preparation which can be tailored to suit the specific circumstances

Pre-termination discussions

The purpose of a pre-termination discussion between an employer and employee is to enable a confidential and inadmissible discussion, regardless of whether a dispute has arisen. The intended result is a Settlement Agreement resulting in the termination of employment. It’s not uncommon for the employee to be unaware of issues with their employment before the discussion takes place.

Before July 2013, there had to be a genuine dispute for a confidentiality provision to apply to ‘without prejudice’ communications between employers and employees. Following that date, section 111A of the Employment Rights Act (ERA) came into effect and allowed more flexibility regarding confidential and inadmissible discussions.

If the pre-termination discussion doesn’t result in the signing of a Settlement Agreement, the employee can bring a claim for unfair dismissal. In this case the employee will be prevented from referring to the pre-termination discussion during legal proceedings or any other ‘open’ communications under section 111A ERA. Therefore it’s advisable to mark all communications ‘without prejudice and subject to contract’.


Confidentiality only applies to claims of ‘standard’ unfair dismissal and will not extend to claims for:

  • Discrimination
  • Automatically unfair reasons for dismissal (e.g. whistleblowing or enforcing a statutory right)
  • Harassment
  • Breach of contract
  • Wrongful dismissal

You should be aware that the new confidentiality rules under section 111A ERA won’t apply if there is ‘improper conduct’ on the part of the employer during the pre-termination discussion. In this case a tribunal will determine whether the employer’s behaviour has been improper and whether the discussion is allowable in proceedings.

Improper conduct in pre-termination discussions under section 111A ERA is far more extensive than the principle of ‘unambiguous impropriety’ in without prejudice discussions. The ACAS definition of improper conduct is therefore similar to ‘unambiguous impropriety’ but will also include conduct such as harassment, bullying, discrimination and victimisation.

Section 111A ERA is also limited to discussions regarding the termination of employment, so won’t be appropriate or effective if this isn’t the result you are looking for.

How the law can help your business

Settlement Agreements and pre-termination discussions under section 111A ERA are a useful and cost effective way for businesses to remove employees without a valid reason.

However, it’s essential to ensure that the termination doesn’t fall within the excluded categories and that the employee isn’t put under pressure during the pre-termination discussion. Ideally, this opportunity should be used for reasonable discussions and resolving potential disputes.

Speak to our Employment specialists

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