The Enterprise and Regulatory Reform Bill 2012 introduces a provision which will allow employers to negotiate a severance package confidentially prior to the termination of employment so that details of the offer cannot be raised in a later unfair dismissal claim.

This new rule is in addition to the existing “without prejudice” rule which only applies where there is an existing dispute between employer and employee. The new provision would apply where a dispute had not yet arisen, widening the scope for out of court settlements.

There is an exception to the new rule which provides that where there has been “improper” behaviour, the tribunal has discretion whether to take into account the confidential negotiations. This discretion is determined by what the tribunal decides is “just”. There is a lack of certainty as to the meaning of both “improper” and “just”, which could give judges a high level of discretion and result in inconsistent interpretation across the tribunals. Further, the “improper” test appears to be an easier test to meet than the corresponding “unambiguous impropriety” test (which applies to the without prejudice rule) – in the (likely) situation where both without prejudice offers and pre-termination confidential negotiations are under consideration by a tribunal, the differing tests could present difficult issues for a tribunal to resolve.

It is proposed that a statutory Code of Practice will be introduced which will clarify how and when such discussions take place, and the Code will have template letters and agreements for employers to follow.

The proposed provision is further evidence of the government’s aim to increase out of court settlements. However in current draft it is sufficiently vague that employers may be advised to ignore the new rule for its lack of certainty and stick to the well-established without prejudice route instead.

It’s anticipated that these provisions will become effective during the latter part of next year and we will keep you updated in terms of the timetable for the introduction and the new Code.

For further information about this, please contact linky.trott@edwincoe.com.

Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.

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