Protected Conversations under section 111A of the Employment Rights Act

The recent EAT Judgment in Gallagher v McKinnon’s Auto and Tyres Limited is a useful decision for employers, having upheld the employer’s position regarding the inadmissibility of evidence relating to what was said in some pre-termination negotiations.

The legal issue

Where an employer has a workplace situation (e.g. potential redundancy or performance concerns) in which termination of employment might be the ultimate outcome, it can be attractive for employers to seek to cut though potential employment processes (such as redundancy consultation or a performance improvement plan) by offering an exit package to the employee concerned at an early stage. However, from the employee’s perspective, the offering of such a package might be indicative that the employer has pre-determined the issue, such that any subsequent dismissal would be unfair, contrary to the Employment Rights Act 1996. If the employee is able to make this argument at the ultimate hearing of a matter in an Employment Tribunal, this could be a disincentive for the employer in trying to settle matters at an early stage. Accordingly, can such offers be made “off the record” so far as such ET proceedings are concerned?

Background law

Section 111A of the Employment Rights Act 1996 was introduced in 2013 to provide an express mechanism to facilitate confidential discussions being held with a view to reaching agreement about terms of severance.  It provides: “Evidence of pre-termination negotiations is inadmissible in any proceedings on a complaint under section 111 [i.e. a claim for unfair dismissal (but not claims relating to discrimination or whistleblowing)]”. This though is subject to an exception “In relation to anything said or done which in the tribunal's opinion was improper, or was connected with improper behaviour”.

This exception has been fleshed out by an ACAS Code of Practice on settlement agreements, which Employment Tribunals are required to take into account.  This has a non-exhaustive list of some examples of improper behaviour which includes:

• All forms of victimisation, harassment, bullying and intimidation, including through the use of offensive words or aggressive behaviour;
• Discrimination because of a protected characteristic such as: age, sex, race, disability, sexual orientation, religion or belief, transgender, pregnancy and maternity and marriage or civil partnership;
• Putting undue pressure on a party. For instance:
  • not giving a reasonable time for consideration of a proposed settlement agreement (10 days is suggested as the minimum period for considering formal terms and getting the required legal advice); and
  • an employer saying before any form of disciplinary process has begun that if a settlement proposal is rejected then the employee will be dismissed.

Facts of the Case

Mr Gallagher was employed by the Company as a branch manager. During June and July 2022, he was on sick leave. Having successfully covered his role during that period, the Company considered that it could continue without the need for a branch manager i.e. that there might be a redundancy situation. Mr Gallagher was invited to a meeting on 1 August 2022, ostensibly to discuss his return to work. However, the Company wanted to discuss offering him an exit package, with an enhanced redundancy payment of £10,000. At the meeting, the proposal was put to him. A director of the Company explained that if Mr Gallagher accepted the offer, the parties would sign a settlement agreement but, if he rejected it, the company would go through a redundancy procedure. Mr Gallagher was given 48 hours to consider the proposal. In the days following the meeting, the parties exchanged text messages and the Company provided a breakdown of the £10,000 figure in response to a request from Mr Gallagher. As Mr Gallagher did not accept the proposal within 48 hours, he was invited to a formal meeting on 4 August 2022 to discuss his potential redundancy and the possibility of suitable alternative employment. In due course, Mr Gallagher was dismissed and claimed unfair dismissal.

Employment Tribunal and EAT Decisions

The Employment Tribunal considered, as a preliminary issue, whether evidence relating to the pre-termination negotiations would be admissible. The ET found that there had been no “improper behaviour” by the Company and, accordingly, the negotiations were covered by section 111A of the ERA and were not admissible in evidence in the ET which would hear the substantive unfair dismissal claim.

In particular, the ET found:

• Telling Mr Gallagher that a redundancy process would begin if he did not accept the offer was not the same as telling him that he was going to be dismissed if he did not accept, since a redundant employee may not always be dismissed.
• As regards inviting him to a meeting ostensibly to discuss his return to work after sickness but instead using it to put forward the settlement proposal, the ET did not find that the employer had lied about the purpose of the meeting. While it may not have been fair to use this meeting to raise the possibility of departure on settlement terms, fairness was a different question to impropriety. The ET drew upon their finding the meeting had been conducted calmly, the Company provided information requested and Mr Gallagher did have some time to discuss matters with his family.
• As regards setting a 48-hour deadline for acceptance, although the ACAS Code refers to a ten-day period for considering a written offer, the offer made to Mr Gallagher was verbal. If he had accepted, a written settlement agreement would have been provided later.

The EAT could see no error of law in the ETs approach and so upheld its decision. While another ET judge might have reached a different conclusion, it was open to the relevant judge to decide, having regard to all the circumstances, that the conduct of the Company did not amount to undue pressure.

Conclusions

One senses that there may have been some sense level of pragmatism on the part of the ET and EAT. In practice, the ET system is under considerable strain and satellite litigation is to be discouraged, in order to focus precious ET time and resources on substantive cases. Negotiations conducted under the “shroud” of s.111A do result in many cases being resolved by agreement and so this is arguably to be encouraged.  Further, if the bar for an allegation of “improper behaviour” were to be set low, this would perhaps likely to lead to satellite litigation on this topic in more cases.

Further information

If you have any questions regarding this blog, please contact Nick Ralph in our Employment team. 

About the author

Nick Ralph is a highly experienced employment lawyer with an exceptionally strong reputation in the City of London and beyond.