Secret talks: government misguided over new 'protected conversation' rules

The government is to press ahead with its controversial proposals for settlement agreements and a new cap on compensation for unfair dismissal claims. In its response published in January to its Consultation Paper of last year, the government has, in many respects, discounted much of the advice it has received from lawyers and other consultation respondents.

New procedures

The way in which settlement agreements are to work developed out of initial proposals from the deputy prime minister to resolve disputes with older workers. He wanted bosses to be able to have frank discussions without being accused of ageism.

That idea was expanded into a proposal to allow without prejudice conversations to be held concerning general underperformance. The prime minister suggested in the Commons that the rationale for such a law was that employers were so concerned about the prospect of being taken to tribunal that they did not feel able to have frank conversations with their employees and therefore felt unable to create those jobs in the first place.

This suggestion caused so much complaint from employee representatives and the HR fraternity that the idea has now been modified so that 'protected conversations' are only to apply to discussions to end employment which lead to a complaint of unfair dismissal.

The rhetoric has also changed. The subject is now described as being about the 'confidentiality of settlement conversations'. The government presents the change as demonstrating its ability to listen, given that it rejected Adrian Beecroft's proposal for no-fault dismissal.

The second issue is that of new cap on the amount of compensation that can be recovered in an unfair dismissal claim by reference to two limitations. The first is the existing upper limit (currently £72,300). The second is that no one will be able to recover more than one year's pay.

The new law in the Enterprise and Regulatory Reform Bill will receive Royal Assent in spring 2013 but will not come into effect until the summer. In relation to settlement agreements this is because ACAS has to prepare a new Code of Practice and Guidance to supplement the new provisions. Secondary legislation will also be required to change the cap on compensation; that too is anticipated for summer 2013.

Institutionalised insincerity

The theory is that employers and employees should be able to initiate conversations including terms on which employment is to end and be certain that nothing said is admissible in a tribunal hearing for unfair dismissal. This has the same effect as the without prejudice rule with the important difference that no pre-existing 'dispute' will be needed. Many employers have run into difficulties in the past and faced claims for constructive dismissal after holding discussions about ending employment in the absence of a pre-existing dispute. The new law is an attempt to work around that problem while leaving the without prejudice rules in place. The two regimes will co-exist so that if there is a clear dispute there will be nothing to stop the parties holding a without prejudice discussion as they have always been able to do. Many, including the Employment Lawyers Association (ELA) and the CIPD have expressed concern at the way this law has been designed. No particular previous process is required before one of these conversations is initiated. It may well take the employee entirely by surprise. Both employers' and employees' organisations consider this could encourage poor management practice and create a shortcut to dismissal without proper process.

The whole point of the objections to the initial idea of 'protected conversations' was that poor performance requires the opposite of secrecy, rather it requires an open and on-the-record appraisal of the quality of work done and appropriate target setting. The anxiety of many is that too many corners will be cut by impatient managers who will be safe in the knowledge that, if they do not secure a departure, nothing they have said will be on the record for the tribunal. When the employer then begins a 'formal' process it is difficult to imagine this will be carried out in a properly impartial manner, certainly the employee will not believe that is the case. The whole exercise could institutionalise insincerity, which presumably is not the intention.

Restricted scope

Then there is the problem that the new rule will only apply to unfair dismissal claims, not claims for discrimination or whistleblowing. The new process should not be used if the employee may make these claims. A risk therefore exists that there may be situations where personality problems leave employers open to claims of discrimination and this is alleged to be the reason for initiating the conversation. Understanding how this works technically and the impact it may have on the inadmissible nature of the negotiations ?will be very important for employers. It is quite a difficult message to communicate and there is, so far, little guidance about what an employer should do if the allegation emerges in the middle of a negotiation. How to handle this risk will become an integral part of any training programme for managers.

The inherent uncertainty that will then result is clear from the wording of the proposed new section because the inadmissibility will be lifted only 'to the extent that the tribunal considers just'. What has happened is that civil servants have recognised the problem but avoided any solution by passing it on to the tribunal judiciary. No one will know where he or she stands until the case is heard. One has to wonder how long it will take for claimants to see the considerable negotiating advantage an allegation of unlawful discrimination will provide. The employer will have made their position clear but will not know the extent to which the inadmissible conversation is in fact inadmissible.

The fact that the proposal only creates protection in unfair dismissal cases is also a considerable limitation because many employment disputes include multiple claims. In particular, the government has ignored concerns that the new rule does not apply to claims for unpaid notice pay. The government said it did not want to 'get involved in agreements made directly between the parties'. Many might think that is exactly what these regulations propose.

This also ignores the fact that tribunals have jurisdiction in wrongful dismissal claims up to £25,000 and that the same tribunal has to resolve both issues at the same time. How the conversation can be admissible for one part of the case and not the other remains a mystery.

Improper conduct

The new law will provide that negotiations will not be inadmissible if the conduct of either party in the discussions is 'improper' or 'connected with improper behaviour'. This new test attempts to address such problems as discriminatory conduct or undue pressure being used to coerce settlements. The proposed new ACAS Code of Practice is intended to assist parties understand what is or is not improper conduct. However, there are very serious concerns that the vagueness of the concept will lead to anxiety on the part of employers about using the procedure. The equivalent test to lift the protection in a without prejudice conversation is one of 'unambiguous impropriety'. ELA has pointed out that this is obviously a more severe test than 'impropriety' and has predicted a considerable period of uncertainty before any standards are established. Whatever is in a Code of Practice it will be judges who determine this issue and that will take time.

The government is also preparing template settlement agreements and draft letters to initiate the process. Those who are used to dealing with these situations will not be impressed with the drafts. They are very basic and largely prepared for businesses with little or no HR resource. The idea that the government should set out guideline financial tariffs for such settlements has been scrapped, for which one must be pleased.

The proposal to limit tribunal ?awards to one year's pay subject to the existing cap will be welcomed by most employers. Government relies on the relatively low figure of the median award in these cases (£4,560 in 2011/12) and considers that the existing cap encourages unreasonable expectations among claimants and inappropriate anxiety among employers. Again the new cap will only apply to awards for unfair dismissal. It is apparent that the larger awards are in discrimination cases.

Courts and tribunals will take some time to iron out the new concept of improper behaviour and the principles that govern the exercise of discretion when deciding to admit evidence when discriminatory motives are alleged to have initiated the discussions. The best advice may be to wait and see for a year or so before using the new procedure other than in the most straightforward cases.