The 29th July 2013 will introduce a number of fundamental changes to the Employment Tribunal process for both employees and employers.  One such change is the re-naming of compromise agreements as settlement agreements.  

So apart from the name, what’s the difference?

Under the Enterprise and Regulatory Reform Act 2013, employers and employees will be expected to have confidential pre-termination negotiations to bring employment to an end.  The idea is to allow employers to effectively manage their workforce, without the threat of legal proceedings. Of particular note is the fact that when an offer of a settlement agreement is made to an employee, they will not be able to disclose this fact to a Tribunal should they decide to reject the offer and pursue a claim for unfair dismissal. 

What protection has been built into the bill to protect employees?

Essentially, only discrimination or evidence of ‘improper behaviour’ will be sufficient to enable an employee to bring the offer of a settlement agreement to the Tribunal’s attention. There is no specific guidance on what ‘improper behaviour’ would be, but ACAS have issued a draft code which sets out some fairly straight forward advice on the matter.  One of the recommendations they make is to give an employee 7 days to consider a potential settlement offer. This should give the employee sufficient time to seek independent legal advice before accepting/rejecting the offer. 

What about from the employer’s perspective?

The change was put forward by business secretary Vince Cable to try and make sure "that the right conditions are in place to encourage investment and exports, boost enterprise, support green growth and build a responsible business culture."  It could be argued that the changes bring about a refreshingly honest approach to terminating employees' contracts. However, practitioners are concerned about how protected conversations will work in reality.  Until the provisions have been fully tested, employees will have to be very careful to ensure they do not take part in ‘improper behaviour’.  The consequences of falling foul of this provision will be to make conversations in relation to the settlement agreement admissible in a subsequent Employment Tribunal. 


Essentially, the new regime will mean that at any point, with no prior notification, an employee could be dismissed and have very little recourse to the Tribunals. Of course the employee can always reject the offer but in reality if you have been told that if you reject the offer you will be placed on disciplinary/performance reviews, it seems likely that most offers of a settlement agreement will be accepted. Employees should note that these agreements were always supposed to be a ‘negotiation’ and one in which you are expected to take an active part. In order to ensure that you maximise this opportunity you should ensure you receive legal advice on your position and to help with any subsequent negotiations.   

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