In this case the Employment Appeal Tribunal (EAT) held that an employee was not permitted to introduce details of his employer's actions during pre-termination settlement negotiations as evidence in support of his unfair dismissal claim. This was because the employer's actions did not meet the threshold of "improper" behaviour under the Employment Rights Act 1996 (ERA).
Background
In order to encourage the settlement of employment disputes without litigation, the ERA states that evidence of "pre-termination negotiations" (i.e. offers made or discussions held before termination of employment, with a view to such termination taking place on agreed terms) will be inadmissible in ordinary unfair dismissal claims. This provides broader protection than the without prejudice principle, since it allows such negotiations (which are often referred to as "protected conversations") to be treated as confidential where there is no existing employment dispute.
However, there is an exception where an employment tribunal finds that there has been improper behaviour by either party. The examples of improper behaviour set out in the Acas Code of Practice on Settlement Agreements (the Acas Code) include putting undue pressure on a party – for example, by not giving them reasonable time to consider a settlement offer, or saying before any form of disciplinary process has begun that, if a settlement proposal is rejected, then the employee will be dismissed.
Facts
Mr Gallagher was employed by McKinnon's Auto and Tyres Limited (McKinnon's) as a branch manager. He was absent due to illness during June and July 2022, during which time the directors managed to cover Mr Gallagher's role. They therefore considered that they no longer needed a branch manager.
The directors invited Mr Gallagher to a meeting on 1 August 2022, ostensibly to discuss his return to work. However, after a brief discussion about his health, the directors set out a proposal to terminate Mr Gallagher's employment by reason of redundancy, with the offer of an enhanced redundancy payment of £10,000 conditional upon Mr Gallagher signing a settlement agreement. The directors gave Mr Gallagher 48 hours to consider the offer, and explained that, if he were to reject it, the company would go through a redundancy procedure. There followed an exchange of text messages in which Mr Gallagher sought, and the directors provided, a breakdown of the £10,000 payment. However, when Mr Gallagher had not accepted the proposal within the 48 hour period, he was invited to a consultation meeting to discuss his potential redundancy and possible alternative employment, and he was ultimately dismissed for redundancy.
Mr Gallagher claimed unfair dismissal and sought to rely on the 1 August 2022 discussion as evidence of unfairness. At a preliminary hearing, the employment tribunal agreed with McKinnon's that the discussion was a pre-termination negotiation and therefore inadmissible. It rejected Mr Gallagher's argument that the exception for improper behaviour applied. Mr Gallagher appealed.
The EAT dismissed the appeal, holding that the tribunal had been entitled to conclude that McKinnon's had not put Mr Gallagher under undue pressure to accept the settlement offer contrary to the Acas Code.
In the EAT's view, McKinnon's telling Mr Gallagher that the company would begin a redundancy process if he did not accept the offer was not equivalent to an employer telling an employee before a disciplinary process begins that they will be dismissed if they reject a settlement proposal. In that scenario, the employee will be more likely to feel undue pressure to sign a settlement agreement because they can have no faith in the integrity of the disciplinary process that will be followed if they refuse. By contrast, a redundancy process does not inevitably lead to dismissal, as the employee whose role is redundant may be redeployed.
Mr Gallagher also alleged that inviting him to a meeting ostensibly to discuss his return to work, but then using that meeting for a pre-termination negotiation amounted to improper behaviour by McKinnon's. The EAT noted that the tribunal had not found that the directors had lied about the purpose of the meeting. As a matter of fairness, an employee ought to be given notice of the nature of the meeting to which they are invited. However, while it may have been unfair to invite Mr Gallagher to a meeting without being clear as to its purpose, the tribunal was entitled to conclude that this did not constitute impropriety – especially taking account of the wider circumstances, such as the calm manner in which the meeting was conducted, the prompt provision of a breakdown of the settlement figure, and Mr Gallagher having time to discuss matters with his family.
Finally, the EAT agreed with the tribunal that setting a 48 hour deadline for Mr Gallagher to accept the offer did not amount to undue pressure. While the Acas Code recommends giving an employee a "minimum period of 10 calendar days" to consider a settlement offer, this applies to the proposed formal written terms of a settlement agreement. Here, Mr Gallagher was given 48 hours to consider an oral proposal. Had he accepted, negotiations would have continued and he would have been afforded more time to consider any proposed written terms. While another tribunal might have decided this point differently, the EAT did not consider that the tribunal's conclusion was perverse.
What does this mean for employers?
This case is helpful in that it confirms that tribunals should not too readily find that an employer's conduct of a pre-termination negotiation amounts to improper behaviour. Of particular interest is the EAT's conclusion that the misleading nature of the meeting invitation did not involve impropriety. The EAT was, of course, influenced by the fact that the tribunal had not found that McKinnon's actually lied about the purpose of the meeting, but it also noted the tribunal's "observation that an employee invited to a 'protected conversation' is unlikely to react positively". It therefore seems to be advisable following this case that employers consider avoiding explicitly stating that the purpose of a proposed meeting is to initiate pre-termination negotiations. An employer wishing to raise the possibility of a negotiated exit at a meeting where the employee is unaware of the express purpose must, however, handle any such offer and discussion with care. In particular, they must avoid giving the impression that the employee is under any obligation to engage in the discussion or that dismissal will be the inevitable result should the employee refuse the offer.
The fact that the EAT accepted that a 48 hour deadline to consider an oral offer did not amount to improper behaviour is also useful, as it means that employers may be able to propose an exit orally and avoid incurring the cost of drafting a settlement agreement until they know that the employee is at least open to it in principle.
