Settlement agreements: what is section 111A of the Employment Rights Act 1996?

If your employer has offered you a settlement agreement or you are in discussions about agreeing the end of your employment, you might be wondering why you are being referred to section 111A of the Employment Rights Act 1996.

Section 111A sets out the law in relation to pre-termination negotiations and effectively it allows an  employer and employee to have an “off the record” conversation about bringing their relationship to an end.  A pre-termination negotiation is “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.”

Why is this important?  As an example, let’s say a manager feels that one of his sales team (we’ll call him Dave) is underperforming.  The manager is likely to have three options.  The first is to address the performance issues by setting actions plans and targets, potentially with the offer of support and training.  The second is to end Dave’s employment so that another person can be recruited to the role.  If Dave has more than two years’ continuous service, he has the statutory protection against unfair dismissal so it’s not an option for the business to simply end his employment, at least not without ensuring that they have a fair reason and that a fair process has been followed first.  In practice, this usually means managing the performance problems and issuing warnings if the required improvements are not seen, which can be a long process which is often difficult for all involved.  The third option is for the parties to mutually agree to end the employment relationship, which normally means the employer paying a severance or settlement sum.

However, if the manager wants to talk to Dave about the option of ending his employment by agreement, it could come with two main risks.  The first is that Dave interprets it as confirmation that the business no longer wants to work with him and so he resigns and treats himself as constructively and unfairly dismissed.  The second is that Dave doesn’t resign but endures the performance management process and, if he is dismissed, seeks to use his manager’s initial suggestion of an agreed exit as evidence that the whole dismissal process had been predetermined and was therefore unfair.

In 2013 the government introduced s111A so that employers and employees could have sensible conversations about exit terms without the risks outlined above.  In essence, the law says that such “protected conversations” cannot be used as evidence in unfair dismissal claims.  Accordingly, in the above example, the two risks are removed if the manager has a protected conversation about the terms on which Dave’s employment might end.  The law was changed in 2013 to build on the rules relating to “without prejudice” conversations, which operate in a similar way but only if there is a pre-existing dispute, which there often isn’t (Dave’s case included).  In any event, most offers or discussions of settlement will be labelled as being “without prejudice and subject to contract” as well.  “Subject to contract” means that even if the parties agree a deal in principle during their discussions, it will not be deemed complete and binding until they have agreed and signed a contract.

As you might expect, there are some exceptions to the rule.  If either party engages in “improper behaviour” then the conversation will be admissible in evidence.  Such behaviour includes bullying or putting undue pressure on the employee to accept, for example by asking them to make a very quick decision or saying that they will be dismissed if they do not agree.

Also, the rule applies only to unfair dismissal claims.  So if Dave thinks that his manager is criticising his performance or treating him unfairly because of his race or age (or indeed any other of the nine protected characteristics found in the Equality Act 2010) then he will be able to rely on the conversations as evidence as part of a discrimination claim.

As you can see, discussing and agreeing employee exits can be a complex area so it’s important to take legal advice, whether you are an employee or employer.