Consultation due on code of practice covering use of settlement agreements

The Government has said that Acas will consult on the content of a statutory code of practice that will set out the broad principles that will govern the use of settlement agreements (formerly called compromise agreements). This follows the Enterprise and Regulatory Reform Bill's insertion of a new section in the Employment Rights Act 1996 to facilitate the use of settlement agreements. In effect, the provision allows an employer to have a "protected conversation" with an employee with a view to terminating his or her employment under a settlement agreement, without the employee being able to rely on the details of the conversation as evidence in an unfair dismissal claim. 

The code "will, as far as possible, give employers certainty that if they follow the approach outlined, they will be able to secure a settlement agreement and avoid tribunal claims". It will explain how employers or employees should make an offer of settlement that is to benefit from the above mentioned protection. 

In the Government's Consultative document on ending the employment relationship (PDF format, 303K) (on the BIS website), it proposed that the code be drafted to embody certain principles, including that:

  • where an offer is made, the reason for offering the settlement should be made clear;
  • where an individual refuses settlement, the employer must go through a fair process before deciding whether or not to terminate the relationship; and
  • the employer should not make discriminatory comments or act in a discriminatory way when making an offer of settlement. 

The Government also proposed that the code explain the types of "improper" behaviour that will not be protected. 

The Government said that the code will be available to employers, employees and their representatives before the changes to the unfair dismissal rules in the Employment Rights Act 1996 come into force. 


XpertHR legal timetable and HR calendar Keep up to date with new legislation, consultations and HR developments in 2013 with XpertHR's legal timetable and HR calendar. 

The XpertHR FAQs section answers the following employers' questions on compromise agreements:

The XpertHR policies and documents section provides a model Compromise agreement and a model Settlement agreement to refrain from commencing proceedings

Unfair dismissal plans likely to make paying off senior managers more affordable XpertHR's consultant editor Darren Newman explains why paying off underperforming senior managers could become an attractive option under the Government's plans to reduce the maximum unfair dismissal compensatory award. He also considers another reform of the Government: the promotion of "settlement agreements".