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6 September 2013

New ACAS Guidance on Settlement Agreements

ACAS has published new guidance on settlement agreements and pre-termination negotiations, to assist employers and employees to understand and implement the new rules introduced under the Enterprise and Regulatory Reform Act 2013.

The new rules on pre-termination negotiations came into force on 29 July 2013.  These new rules operate to provide a limited expansion of the existing ‘without prejudice’ rules, and rename compromise agreements as ‘settlement agreements’.

ACAS issued a new statutory Code of Practice on settlement agreements in advance of the new rules taking effect.  More detailed guidance to accompany the Code of Practice was published to coincide with the changes on 29 July 2013.

The new guidance is intended as a guide to good practice and, unlike the Code of Practice, which may be taken into account by an employment tribunal, it has no statutory force.

The guidance explains the circumstances when it might be appropriate to use a settlement agreement and the process to follow, including factors to consider in making a financial offer to the employee. It also explains what might be considered ‘improper behaviour’ during the settlement negotiations, which may result in evidence of the negotiations becoming admissible in subsequent tribunal proceedings.

The guidance also includes template letters to initiate settlement discussions, and a simple model settlement agreement.  The guidance reiterates the importance of tailoring the agreement to suit the particular circumstances of an individual termination.  For the agreement to be binding, the employee is required to seek independent legal advice.  It would also be prudent for employers to seek advice in order to ensure that they have appropriately tailored the agreement and to include any necessary additional provisions in more complex scenarios, for example to deal with share options and pension entitlements.

A copy of both the Code of Practice and guidance is available on the ACAS website.