Unfair Dismissal – Evidence of pre-termination negotiations with a short time limit for acceptance of a settlement offer inadmissible – Gallagher v McKinnons Auto and Tyres Ltd  

Settlement Agreements have been around for over 11 years now; and before then Compromise Agreements have been used for a lot longer. They represent an opportunity for any employer to depart from a process that could lead to an employee’s termination of employment, which may or may not be fair, or avoid a process altogether. The “protected conversation” has been the go-to process for many employers looking to manage away the risk of a claim from an employee and essentially buy out a claim, saving management time and legal bills in defending any Employment Tribunal proceedings.

Protected conversations (or pre-termination settlement discussions) are an “off the record” opportunity to do a deal that gets the employee to waive all of their employment rights, except any possible latent personal injury claims, or pension related claims in return for a payment of compensation. If a deal is not done, at least Section 111A of the Employment Rights Act 1996  (ERA 1996), makes those discussions inadmissible in any subsequent Employment Tribunal proceedings. So that’s all well and good then. However, there is always an exception and this article deals with whether the exception of the protection falling away applies in all cases of improper pressure (often referred to an impropriety) being applied towards to the employee to get them to take the carrot.

Background

Mr Gallagher was employed by McKinnons Auto and Tyres Ltd (MAT Ltd) as a branch manager. Following a period of sickness by Mr G in 2022, MAT Ltd found that the business was able to function in the absence of a branch manager and the role could be covered by the directors. Mr G met with MAT Ltd for a ‘Return to Work’ meeting, however MAT Ltd offered him a redundancy package with an enhanced redundancy payment of £10,000 during this meeting, which came as a surprise to Mr G. MAT Ltd gave him 48 hours to consider the proposal but Mr G did not accept the offer within that time frame and following a further meeting to discuss his potential redundancy and the possibility of alternative employment, MAT Ltd dismissed him by reason of redundancy.

Mr G bought a claim for unfair dismissal to the Employment Tribunal. Mr G tried to claim that the impropriety exception under Section 111A(4) of ERA 1996 applied, in that “anything said or done was…improper or connected with improper behaviour”. Mr G argued further that he was put under undue pressure as he was only given 48 hours to consider and respond to the offer of the redundancy package. Mr G sought to rely on the pre-termination discussions with MAT Ltd as evidence of his unfair dismissal.

Tribunal’s Decision

In considering Mr G’s case, the Tribunal determined that the ‘Return to Work’ meeting qualified as pre-termination negotiations and was therefore a protected conversation under Section 111A of the ERA 1996. The definition of pre-termination discussions means “any offer made or discussions held, before the termination of the employment in question, with a view to it being terminated on terms agreed between the employer and the employee”. Protected conversations are inadmissible as evidence in an unfair dismissal claim. Not any Equality Act 2010 claim such as discrimination, harassment and victimisation; or breach of contract, wrongful dismissal or claims for automatic unfair dismissal due to e.g. a pregnancy or maternity related dismissal however.

The Tribunal appreciated that Mr G may have felt shocked or surprised by the offer of redundancy during his ‘Return to Work’ meeting, however they found no impropriety/improper pressure by virtue of Section 111A(4) of the ERA 1996 by MAT Ltd. Mr G appealed the Tribunal’s decision.

Appeal Decision

The EAT dismissed Mr G’s appeal and agreed with the Tribunal that the pre-termination discussions during his ‘Return to Work’ meeting fell under the definition of a protected conversation. The EAT also agreed with the Tribunal in that the impropriety exception did not apply. The EAT noted that paragraph 18(e)(ii) of the ACAS Code of Practice on Settlement Agreements refers to an employer placing undue pressure on an employee, before any form of disciplinary process to accept  termination of employment settlement proposal, by saying that if the settlement proposal is rejected the employee will be dismissed. Thereby rendering any protection of the settlement discussions from being inadmissible and not to be referred to in any employment tribunal proceedings null and void.  The Code further mentions that “The protection in section 111A will not apply where there is some improper behaviour in relation to the settlement agreement discussions or offer”.

The EAT also found that whilst it may not have been proper for MAT Ltd to use Mr G’s ‘Return to Work’ meeting to raise the possibility of redundancy with him, their actions did not constitute impropriety. He was offered ample time to discuss the proposal with his family and the EAT made reference to MAT Ltd.’s calm and measured approach when offering the redundancy proposal to Mr G, and in turn this helped to mitigate a finding of undue pressure.

Moreover, the EAT did not find the time limit of 48 hours given to Mr G to be improper, as this only related to a verbal offer and he would have been presented with a written settlement agreement with reasonable time to further consider. As per paragraph 12 of the ACAS Code of Practice on Settlement Agreements says, a minimum period of 10 calendar days should be given to an employee to consider the written terms of the proposed settlement agreement.

Take aways for employers

It may have been easy for the Tribunal to find that MAT Ltd misled Mr G into discussions regarding his redundancy during a ‘Return to Work’ meeting, but this was a finely balanced case. Therefore it will be important for employers to ensure employees are not mislead about the purpose of a meeting they are asked to attend. Employers should approach discussions in a calm and meaningful manner, conduct conversations in good faith and maintain constructive conversations throughout.

Employers must ensure it is clear to the employee that they could (not will) face being dismissed for one of the five fair reasons for dismissal. In Mr G’s case, it was by reason of redundancy as per Section 98(2) of the ERA 1996. If he had faced disciplinary proceedings and he was pressured with the threat of a misconduct dismissal in that process if he did not take the offer, then the outcome would have been different. In addition, whilst not legally binding, the ACAS Code of Practice on Settlement Agreements can provide employers with helpful guidance on how to conduct pre-termination discussion that comply with Section 111A of the ERA 1996. The Code further provides some examples of what can constitute improper behaviour in the context of settlement agreement discussions.

If you are an employer and require any assistance regarding any of the issues mentioned within this article, the team at Thomson Snell & Passmore would be happy to assist you, contact us here.