Settlement Discussions

Possible steps in a settlement discussion where the employee is still employed

Step 1: invitation to meeting

The employer invites the employee to a meeting at a mutually convenient time and place.

The correct approach will depend on the circumstances, but in most cases the employer will not wish to notify the employee in advance that the purpose of the meeting is to discuss settlement.

If the employer considers it necessary to give a reason for the meeting, or if the employee is pressing for further information, it may be appropriate to refer to the underlying issue which has led the employer to make the offer and indicate that it is an informal discussion of that issue.

Step 2: at the meeting

At the meeting, the employer explains its concerns (for example, performance issues or the breakdown of the working relationship) in a neutral manner, and proposes an exit with an agreed settlement package.

The employer should provide enough information for the employee to understand what has led to the offer and the potential consequences if they do not depart.

A lack of information about the background may leave the employee unaware of the risks of remaining in employment and therefore reduce the incentive to accept the offer.

A lack of information about the background may leave the employee unaware of the risks of remaining in employment and therefore reduce the incentive to accept the offer.

Where inadequate information is provided, this could support an argument that there is a discriminatory basis for the offer.

However, the employer should also be cautious about providing excessive or detailed information about the underlying issue. Doing so could suggest that the employer has pre-determined the employee’s dismissal and amount to improper behaviour. It may also lead the employee to focus on defending against the accusations rather than considering the settlement offer.

Although the employer should ensure that the employee is aware of the possibility of disciplinary or capability proceedings if they choose not to accept the offer, they should not be put under pressure to do so and the employer should not normally give a view on the outcome of any such proceedings (although it could make reference to the possible outcomes).

Often it is appropriate to make a financial offer to the employee, so the employer should give careful thought to what it is prepared to offer and convey this to the employee.

The employer should also explain that if the employee is ultimately dismissed then they will not be entitled to leave on the same terms as are currently on offer.

It is good practice for the employer to highlight that settlement discussions are expected to be inadmissible in tribunal proceedings and that they will have no bearing on any subsequent performance management or disciplinary procedures if settlement discussions are ultimately unsuccessful.

In the light of the risk of admissibility of the discussion, some employers provide the manager conducting the meeting with a script or skeleton template for the meeting.

However, given the limitations of pre-termination negotiations, any such script should be drafted with the prospect of it being disclosed to the employment tribunal in mind.

Step 3: written offer

If the employee agrees to explore the suggestion of settlement, the employer produces a written offer.

It will sometimes be helpful to also provide a draft settlement agreement at this stage so that the employee can take legal advice on the whole package.

This will also potentially allow matters to be resolved more quickly, given that the Acas Code of Practice on Settlement Agreements suggests that an employee should, as a general rule, be allowed ten calendar days to consider the proposed settlement agreement (see Acas guidance on conducting settlement discussions).

If there is delay in producing the settlement agreement then this extends the timescale for completion.

However, in some cases, providing a draft agreement at this stage may be counterproductive. Some employees may interpret the production of a lengthy settlement agreement at this point in the process as suggesting that the employer is determined to proceed with termination. It may be more effective to allow the employee to feel that they retain some control over the issue. The correct approach will depend on the circumstances, including the personality of the employee involved. 

The employee must have a “reasonable period” in which to consider the formal written terms.

Step 4: settlement agreement

If the employee is interested in proceeding with the settlement, the employer can provide the employee with a settlement agreement documenting the terms, if they have not already done so.

The employee will need to take independent legal advice on the implication of entering into the agreement.

If the employee is not interested in exploring settlement, the employer should cease settlement negotiations and seek to tackle the underlying problem.

Notably, it is equally open to the employee to approach the employer to initiate a pre-termination negotiation.

It is unusual for an employee to approach an employer with a draft settlement agreement because the employee normally expects the employer to bear the cost of preparing the agreement if terms can be agreed.

It is more common for an employee wishing to initiate pre-termination negotiations to approach their employer with the suggestion of discussing a negotiated departure, and allow the employer to make an initial offer.