SETTLEMENT AGREEMENTS: THE NEW CODE OF PRACTICE

On 29 July 2013, compromise agreements became settlement agreements. To support this change, ACAS also produced a new Code of Practice. It says that following it is “voluntary for employers”. Should you go further?

 

Background facts

For many years employers have been able to use compromise agreements to settle workplace disputes. However, to better reflect their function, the government decided to rename them “settlement agreements” and this change took effect on 29 July 2013. To coincide with it, ACAS produced a new Code of Practice (the Code) which came into force on the same date (see The next step ). As with all ACAS codes, employers aren’t legally obliged to follow it – but, in reality, they ignore it at their peril. Why is this?

 

What’s in the new Code?

Firstly, the Code sets out the law relating to settlement agreements. When it comes to how they are structured, nothing has really changed. For example, the Code explains that, in order to be binding, the settlement agreement must:

– be in writing

– relate to a particular complaint or proceedings

– identify the “relevant independent advisor” who the employee has received advice from on the terms of the settlement agreement

– confirm that the independent advisor has in force a current contract of insurance or professional indemnity that covers the risk of a claim by the employee in respect of loss arising from their advice; and

– state that the statutory conditions regulating the settlement agreement have been satisfied.

Tip. A relevant independent advisor can be a qualified lawyer; a certified and authorised official; employee or member of an independent trade union; or a certified and authorised advice centre worker.

Best practice points

In addition, the Code sets out how the parties should interact with each other during the settlement agreement process and gives examples of what constitutes “improper behaviour”, e.g. bullying, harassment or discriminatory treatment (although this isn’t an exhaustive list). The Code also states that:

– the parties should be given a reasonable period of time to consider the proposed settlement agreement and that, generally, a minimum of ten calendar days should be allowed, unless agreed otherwise

– whilst not a legal requirement, employers should allow employees to be accompanied at a settlement discussion meeting by a work colleague or trade union official/representative

– settlement agreements and the surrounding negotiations are voluntary, i.e. you can’t insist that they take place.

Tip 1. Although you’re free to ignore the best practice advice above, the tribunal has a legal duty to consider it when dealing with claims relating to settlement agreements. So if you’ve failed to follow it without a good reason, you can probably expect to lose. If you haven’t done so already, read the eleven-page Code now.

Tip 2. To help you get to grips with the Code, ACAS has also released a non-statutory guide. It provides more detail on settlement agreements and the process generally (see The next step ).

Although the Code isn’t binding on employers, the tribunal must have regard to it when considering relevant claims. As it sets out the law and accepted best practice during settlement negotiations (including what constitutes improper behaviour by the employer) you should always follow it to the letter.