(Gallagher v McKinnon's Auto and Tyres Ltd) 

Why the case matters 

When parties want to enter into a settlement agreement, they may engage in 'pre-termination negotiations' regardless of whether there is a genuine dispute between the parties (by contrast, without prejudice discussions require there to be a genuine dispute). In either case, the purported confidentiality of the discussion may not be used as a cloak to hide wrongdoing or improper conduct. Put another way:

• Pre-termination negotiations are confidential under the Employment Rights Act 1996. The effect of this is, that any pre-termination settlement negotiations are inadmissible as evidence in employment tribunal proceedings in so far as this relates to unfair dismissal. 

• In the event of impropriety, what is said or done during the settlement negotiations may be admitted into evidence in a claim for ordinary unfair dismissal. 

The EAT has provided a helpful example of what does not amount to "improper" conduct during pre-termination settlement negotiations. The case below confirms that the improper conduct exception will only apply where the employer has clearly acted improperly; this is referred to as unambiguous impropriety. 

Facts

G, an employee at MAT Ltd (the Employer), was invited to a meeting to discuss his return to work following sickness absence. The Employer also discussed potential redundancy and proposed an exit package with enhanced payout. G was given 48 hours to consider the offer, which he ultimately did not accept. He was later dismissed following a formal redundancy process. G then claimed unfair dismissal, attempting to use the settlement discussions as evidence. At a preliminary hearing, the Employment Tribunal deemed these discussions to be 'pre-termination negotiations' and inadmissible in 'ordinary' unfair dismissal complaints. G argued that there had been impropriety due to undue pressure from the 48-hour response time, but the Tribunal rejected this submission. 

G then appealed to the Employment Appeal Tribunal (EAT) asserting that the Employer's conduct amounted to unambiguous impropriety, based on his view that: 

• he would have been dismissed if he did not accept the offer
• the meeting was set up under false pretences
• he was only given 48 hours to respond to the offer. 

Decision

The EAT dismissed G's appeal, rejecting all claims of impropriety on the part of the Employer. 

Firstly, the EAT recognised that it can amount to undue pressure to tell an employee that they will be dismissed if they do not accept a settlement agreement. However, in this situation, the Employer did not state that G would be dismissed if he did not accept the offer, only that a redundancy process would commence. 

Secondly, the EAT held that the dual purpose of the meeting, to discuss both the return to work and the settlement offer, did not amount to improper behaviour. The EAT explained that the meeting was conducted calmly, G was provided with a breakdown of the figure offered, and he was given time to discuss it with his family. These factors mitigated the nature and extent of any pressure that G experienced.

Finally, the EAT upheld the Tribunal's view that the time-sensitive offer did not amount to undue pressure as G was only required to verbally accept the offer in this time. If G had accepted, the negotiations would have continued, and he would have eventually been given written terms to consider. 

Comment 

The EATs decision highlights an important distinction between pre-termination negotiations during a disciplinary process versus those conducted in a redundancy situation. It confirms that employers can discuss settlement agreements and make time-sensitive offers without this necessarily constituting impropriety if conducted properly and transparently. Furthermore, it refutes any suggestion that contemplating a redundancy process means that an employee is definitely going to be dismissed. 

Clients should seek legal advice if they are planning to initiate without prejudice or pre-termination discussions to ensure that they will be protected and remain confidential in the event of any tribunal proceedings.