If you’ve decided that you would like to offer an employee a settlement agreement in order to avoid a formal process and reduce legal vulnerability, then you need to consider how to broach the subject safely. You need to avoid the possibility that the employee could bring a legal claim and then use the conversation as proof of an intention to dismiss them.

There are two mechanisms which enable employers to enter into discussion of this nature – the ‘without prejudice’ common-law principle, and the concept of ‘protected conversations’. It’s important to understand how both work, and make an informed decision as to the best approach to use.

Without Prejudice

The ‘Without Prejudice’ rule is that conversations or negotiations entered into with a view to settling a dispute cannot be used as evidence if the dispute subsequently ends up in legal proceedings. It is commonly used in many areas of law, not just in employment.

This sounds perfect, but many employers don’t understand well enough how it works, and putting ‘Without Prejudice’ on a letter or email, or saying that a conversation is ‘Without Prejudice’ isn’t a get-out-of-jail-free card enabling employers to have ‘off the record’ conversations under that protection whenever they choose.

In fact, the ‘Without Prejudice’ protection will only apply if the conversations are in respect of an existing dispute. A ‘dispute’ would mean either active legal proceedings, or a likelihood of that.

This means that even where an employee has raised a grievance, or is subject to disciplinary proceedings, it may not necessarily count as a dispute, therefore even stating that discussions are being held on a Without Prejudice basis may not have the desired effect.

Protected conversations

Because of the limitations of the Without Prejudice arrangement as above, the concept of a protected conversation was introduced to enable employers to have these types of discussion even where there isn’t a formal dispute. The idea is that by stating a wish to have a ‘protected conversation’, if a legal claim were to later arise, the existence and nature of the conversation couldn’t be part of evidence in that claim.

Again this sounds ideal, however the scope of protected conversations is also limited by a number of restrictions and circumstances where the protection wouldn’t apply. The main issue is that the concept only offers protection in the context of ‘routine’ unfair dismissal claims. Any other claims, including breach of contract, discrimination, automatic unfair dismissal, unlawful detriment, are not included.

This means that unless you are absolutely sure the employee could not possibly bring anything other than a straight unfair dismissal claim, there is a risk the protection will not apply and the details of the conversation could be used. If an employee raises issues of (for example) discrimination or whistle-blowing during the protected conversation, the whole conversation will no longer be protected.

The protection will also not apply if there is any ‘improper conduct on the part of the manager holding the conversation. This might include putting pressure on the employee to resign, or threatening them in any way. There is also a risk of a grievance being raised, which would need to be investigated as normal, and might result in the conversation being disclosed as a result of that.

What if neither arrangement for protection applies?

The limitations of both arrangements are fairly significant, and it is entirely possible that a business owner might be contemplating a settlement agreement where there is not technically an existing dispute, and the claim wouldn’t be limited to unfair dismissal. You should always seek professional advice before entering into these discussions in order to ensure you are fully aware of the risks and can make the best choice to protect your business.

However, part of making a decision about when and how to have this type of off-the-record discussion with an employee is analysing the risk of a claim happening in the first place and the employee’s appetite to bring such a claim.

If you are confident the individual is unhappy at work anyway and would be open to leaving, and you have a reasonable budget to make a good payment in a settlement, then the probability of the situation ending in a legal claim is low, and you may decide that even if technically the conversation might end up not being protected, it’s worth having that conversation anyway. If you offer enough that the employee takes the settlement, it won’t matter.

If you’d like some advice about approaching a settlement offer with a member of staff, do get in touch.