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Beware Compromise Agreement Without Prejudice Negotiations

Fiona Martin

Fiona Martin

I run a law firm and head up a busy employment law department acting for both employers and employees. The number of redundancies we deal with – for employers and employees – is rising again. I suspect this may be the ‘W’ everyone warned about. Time will tell.

When redundancies arise, many employers are keen to offer Compromise Agreements. They are a good way to minimise the risk of litigation and management time spent dealing with dismissal appeals and grievances.

However, a Compromise Agreement is not the solve-all many employers think it is and there are pitfalls.

If you are an employer and you are considering offering a Compromise Agreement to save management time and limit the risk of a claim being made against the company, proceed with caution. Legal advice is always advisable.

We would generally advise an employer in this situation to limit conversations with the employee or employees solely for the purpose of trying to settle a dispute. And even if you have requested an off-the-record conversation – without prejudice – ensure you do not make discriminatory comments or embark on discriminatory conduct. If you do, it could be used against you in evidence in any subsequent unfair dismissal or workplace discrimination proceedings.

To be on the safe side, take notes at without prejudice meetings. Record and explain how a Compromise Agreement came to be discussed or offered. It is much better for you as the employer if the employee comes forward with an offer to leave on mutually acceptable terms. If this is recorded at the meeting, there cannot be any suggestion that you offered the Compromise Agreement as an alternative to threatening disciplinary action which was likely to result in dismissal.

If there are ongoing disciplinary proceedings you should continue the process. By following the Acas Code you will protect yourself from any subsequent claim that you failed to follow a fair process should the negotiations break down.

During discussions you should also avoid a take-it-or-else ultimatum. If the employee later brings a discrimination claim they could argue that the way in which the Compromise Agreement was offered was in itself an act of discrimination eg victimisation.

For example, in the case of BNP Paribas v Ms Mezzotero the employee raised a grievance – using her employer’s grievance procedure – claiming she had been prevented from returning to her old job after maternity leave. At a meeting, which the employer requested to be without prejudice, she was offered a settlement package to leave. However, when settlement was not achieved the employee took her claims, including sex discrimination, to the Employment Tribunal.

The case went to the Employment Appeals Tribunal (EAT) which held that the evidence from the without prejudice meetings could be used. For without prejudice to apply, it ruled, there must be a dispute between the parties. In addition, the communication in question – the meeting in this case – must have been made for the purpose of genuinely trying to resolve the dispute.

So it is important to remember that just because an employee raises a grievance does not mean they are in dispute with you. The grievance could subsequently be upheld or dismissed in an acceptable way for the employee.

In the case BNP Paribas v Ms Mezzotero, the EAT found that as there was no dispute it was in the public’s interest for allegations of unlawful discrimination in the workplace to be heard by a Tribunal.

As a result, discriminatory comments made during without prejudice discussions where there is no dispute are admissible as evidence. This is also likely to be the case where the employee is being performance managed. This is because the performance review could result in the company deciding the employee’s work had improved to a satisfactory standard and / or that the real problem had been one of management or resources rather than capability.

In summary, Compromise Agreements can be very useful for ensuring a speedy settlement but should be handled with caution. If offered in the wrong circumstances or in the wrong way the likely outcome is a time consuming grievance and a demand for a much higher settlement sum.

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