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Managing exit negotiations with confidence · Howes Percival Podcast

• Nick: Well, welcome to another episode of Howe's Perceval podcast. I'm Nick Benton. I'm an employment partner. I'm joined today with Hannah Ball also a partner in our employment team. Today, we're to be discussing exit negotiations. We're going to be looking at the different types of issues you need to consider when holding exit negotiations with employees, how best to manage these to manage any associated risks. but also tactical approaches and how to ensure a successful outcome. With the Employment Rights Act 2025 introducing a day one unfair dismissal rights from the 1st of January, 2027 onwards, the need to have exit conversations is likely to increase, particularly where following a redundancy or a conduct or capability procedure is not going to be commercially viable or desirable. So, we thought it was a good opportunity to pick up on this topic and set out some handy tips for employers. So the things, the type of things that Hannah and I will be looking to cover today are broadly, what do we mean by an exit negotiation? And what are the different types? Which type of exit negotiation or discussion is going to be most appropriate in the circumstances? How best to hold a protected conversation? which is a particular type of exit discussion, which I think most employers will be familiar with. When having that exit negotiation or protected conversation, what is the best type of agreement to reflect what is agreed between an employer and an employee? And then we'll be picking up on the dark arts of negotiation and how best to hold a negotiation with an employee and conclude it successfully. So when we talk of an exit negotiation, a different type, what do we mean? Well, Really, an exit negotiation is a conversation had with an employee through which an employer seeks to agree the termination of their employment and the settlement of claims which they have in connection with their employment and the termination of their employment. Now, there's going to be an overlap, I think, between what we discussed today and the type of issues employers might face during employment tribunal litigation where they seek to settle those claims. Really what we're focusing on today is the exit conversations employers are having with employees during the lifespan of an employment. So when we talk about an exit negotiation in that context, there are a number of different types. And really this can all include an open conversation. And by that, what I mean is a conversation that is not necessarily protected could potentially be admissible in legal proceedings. The reality is that an open conversation where you are openly discussing with an employee, attempt to settle their claims is going to be rare in practice. And I think it's only really going to be relevant where each party may have set out their particular complaints in open correspondence and the facts are already out of the open. What is more likely in practice is the second type of protected conversation. And that's what... can be often referred to as a Section 11A conversation. And Section 11A is a reference to Section 11A of the Employment Rights Act, which is the sort of statutory provisions. And a Section 11A conversation is a particular type of conversation which is envisaged to be held in employment by an employer to an employee during the course of employment. And we'll pick up on what the different characteristics and what type of the characteristics of that conversation subsequently. That's, I think, a type of conversation which most employers will be familiar with. Sitting alongside that is the third type of exit negotiation, which is covered within the broad category of a without prejudice conversation. Again, similar to a Section 118 conversation, but with important differences. And then finally, there is, in an employment context at least, the option of having conversations via ACAS. but ACAS are an independent body, which again, most employers will be familiar with, whose remit is to try and conciliate or settle employment-based disputes. And there is always an option for employers to engage with ACAS with the purposes of trying to settle disputes and in that context, having an exit negotiation. Hannah: obviously we've put on the table that quite a few different types of exit negotiation already so as an employer then how are they going to navigate which of those is most appropriate for that particular conversation. Nick: question. And I think the broad answer to that is going to be really, depends on it. It's a case by case basis and depend on the facts and the particular circumstances which you find yourself. I said earlier that there are particular characteristics with these types of conversations. So a Section 11A conversation or protected conversation, which I said most employers will be familiar with. The key point to note with that is that really it only provides protection and when we refer to protection what we mean is that it's not going to be admissible within employment tribunal legal proceedings. So Section 11A protection that only applies for ordinary unfair dismissal claims. So in other words if an employee asserts an automatic unfair dismissal that they've been dismissed or been subject to some form of detriment of having blown the whistle. raised health and safety concerns, alleged breach of legal obligation, or alternatively they are pursuing a discrimination claim, the protection offered by Section 11A of the Employment Rights Act won't apply, it will be admissible. So if you're dealing with a case where you are, for instance, managing performance concerns of an employee who has a disability, you might think rightly that actually a the protection or section more than a conversation, protected conversation is not going to be appropriate in those circumstances. The other conversation I referred to again earlier was a without prejudice conversation. And whilst a without prejudice conversation offers a wider protection and in so far as if without prejudice privilege applies, any conversation will not be admissible in any legal proceedings. say for where certain exemptions apply, that might be more appropriate. But what you need to be mindful of is that certain conditions need to apply in order for without prejudice, privilege to be engaged. Principally, you need to have a specific dispute between two parties and the conversation needs to be a genuine attempt to resolve that dispute. Now, there is a whole body of case law regarding what amounts to a dispute. and whether something is a genuine attempt to resolve that dispute, which is probably beyond the scope of this podcast. But suffice to say, you need to really carefully consider the facts of the case to see whether or not actually without prejudice privilege is engaged. Often, I'm sure Hannah will agree, we see employers or individuals labeling correspondences without prejudice, thinking that it could never be referred to. to an employment tribunal. And that's not just the case. Hannah: I was just thinking what we often get asked with, is there really a dispute? Is a situation such as, ⁓ well, the employees raised a grievance, so we must be in dispute now. What would you say to an employer that came to you in that situation? Nick: Yeah, that is quite a common occurrence and it's not as simple as that, frankly. And actually the near existence of a grievance more often than not, I isn't sufficient to amount to a dispute for the purposes of prejudice privilege. What often you see in practice as well is that employers will enter into a Section 11A conversation because they're familiar with that process, but they will also label it as without prejudice, try and hedge their bets. no criticism, but I think it's probably better to be in that position to be able to at least argue something because covered by Break section 11A protection and without prejudice privilege. But I think the point for employees to take away is that without prejudice privilege may not be engaged. And therefore, a cautious approach where we're cautious of the language that we're using during those conversations is prudent. Look, I should finally, I should add, where if you're dealing with a circumstance where actually there has been a claim issued by an employee whilst they remain in employment, which can happen, not doesn't often happen, but can happen, you would have access to ACAS in those circumstances, as I alluded to earlier. And really, I think in those circumstances, the safest thing would be to engage with ACAS because you have certainty then that the conversations you have with ACAS with the intention of settling that dispute will be privileged, will not be able to be disclosed in the litigation. But like I've sort of touched on then the different considerations to take into account when deciding what type of exit negotiation to engage. As I said, fundamentally, it's going to be on a case by case basis. Generally, employers are, I think, more familiar with holding a protected conversation for the purposes of Section 118 of the Employment Rights Act. Hannah, can you give us ⁓ an overview of what you'd expect to see or the overview of a good protected conversation? Hannah: Certainly we can have a look at some of key factors that you're going to have to explore. As Nick's rightly pointed out, this is obviously a statutory concept that's developed under Section 11A, and it allows you to have that protected conversation even when you're not in dispute, so it can be held even when there's no one at fault or you're not at dispute, which is the beauty of these types of conversations. And as Nick's also pointed out, obviously they're only going to protect you in relation to unfair. dismissal. So that's why we have this hybrid approach and a lot of the points I raise here will also be relevant when you're having without prejudice conversation. But if you don't follow the necessary criteria to make it a section 11A conversation, you're not going to get that protection and we really want that protection. Otherwise, we're going to get into a situation where we're at employment tribunal and an employee is waiving the either without prejudice slash 11A. email or referencing conversations saying, look, I don't think these are covered and therefore anything that you've said, I can refer to an employment tribunal. That's what we're really trying to avoid here, aren't we? Because we want to be able to have those frank conversations to be able to try and get us to the point of getting a negotiated exit. So let's have a look then at the statutory requirements we're going to have to think about. I would also flag at the outset that It isn't just going to be you as HR professionals that are having these conversations. It's often going to be your managers, isn't it, that this is being delegated to. And I think sometimes particularly managers can be a bit free and loose with this term of protected conversation and without prejudice. And so I think really looking at the outset at what you need to do and guiding the manager and perhaps providing them even with a script is really helpful to make sure that you're. getting those key elements of that protected conversation in place. So I think right before we even get into the detail of what we're gonna do during that protected conversation, we need as employers to work out what's our plan B. Because actually you could get into a situation where an employee comes into the meeting and they say, well, I don't want to have a settlement agreement. I don't want to exit or I don't want to even have this conversation. We ultimately then need to know what our fallback position is. For example, are we going to then continue with the redundancy process? Will they be placed under performance management? We really need to look at the thrust of why we're entering into this conversation in the first place, because that will inevitably mean that you're going into those conversations and negotiations, hopefully in a stronger position as possible. And it also ultimately gives you a rationale when you're providing that offer to the employee as to the context of what has led to that agreement, which will help. hopefully mean that they're more likely to engage in that correspondence or conversation with you. So I think it's really important that we do that from the outset. I also think it can get really muddled and messy if we're not careful, if we don't really clearly set out the difference between what is an open conversation and what is our protected conversation. Because obviously, as Nick's clearly pointed out, the open part of any conversation can be referred to in tribunal. Whereas the protected part, if it's done properly, can't be referred to in tribunal. So if you're explaining to someone, for example, the rationale for why they may be placed at risk of redundancy, or you're wanting to flag performance concerns, it's very likely that we're going to do that on an open basis at the beginning. And ultimately, that will probably be the reason that you're inviting them to a meeting. And then once you have done that, what I would recommend is that you then go into looking at whether they want to have protected conversation, either just under section 11A, or as Nick said, using that hybrid approach and badging it as both if we're unsure as to their potential claims, and we're not sure whether or not really we've tipped into being in dispute at this point. So I think that's really usually how you're going to approach entering into these types of conversations. So if we're going to go ahead then, One thing that often gets discussed, and Nick, I'm sure you've seen this as well, is whether or not you have to give people prior warning about any meeting. It's interesting because the time this all came into force and there was the legislation on Section 118 conversations, there was a code of practice issued by ACAS. And actually, whilst the tribunal will look at the code, it doesn't mean that if you fail to follow it, you're automatically liable for a claim or that the employee will get more compensation. But that interestingly does say that any meeting to have a sexual mormone discussion should be at agreed time and place. I just think in reality, you're almost never going to want to give advance warning of the fact that there's going to be a settlement discussion. What's much more likely as I say, is you'll have an open meeting, either just a one-to-one or a meeting where you kick off a redundancy process or you have a meeting about performance concerns. or an investigation meeting. And then at the conclusion of that meeting, or once you've at least introduced the open process, you then move into discussing whether they want to have a protected conversation. I think sometimes there's this misconception that you can just launch into a protected conversation. And that's not the case. You do need to explain what it is, and you need to clearly move into that protected conversation. and make sure the employee understands what that is. Nick: I completely agree and certainly on the point in terms of inviting or giving advance notice. And I think what I've found from experience is that employees almost have a sixth sense that this type of conversation is coming. And then what you find is that they then try to assert various of the claims to try and improve their position. I'm thinking of particular whistleblowing complaints or discrimination complaints with the view then to improving their bargaining position. So Yeah, it's definitely something the employees need to be mindful of. Hannah: Absolutely. So I think assuming you've been through that initial open conversation with them, you then need to make sure that you're clear with the employee that you now want to have a protected conversation and that they understand the nature of that conversation. And that actually is even the case if they've initiated a settlement discussion, which is much more rare, but can happen. So I think you need to explain the purpose. So we need to be clear it's a confidential, protected conversation and that it's confidential, it can't be discussed with anyone, say for example their legal advisors, and that it can't be relied on in any evidence. Now that would be if it's a Section 11A claim only, obviously specifically in relation to unfair dismissal, but if it's wider without prejudice conversation that would be in respect of any claim. You can reassure the employee and explain it has to be structured in that way to be properly compliant, protected conversation, and that they're under no obligation to have it. but it will allow confidential discussions to take place if they agree. I think it's critical that they understand that. I also would be flagging to them what the consequences are of them breaching the confidentiality of it. So for example, that any offer would be withdrawn or that it may in itself lead to disciplinary proceedings, because often, I'm sure we've seen this, we, Nick, where people suddenly start spouting off around the workplace that they've been offered 20 grand to leave, et cetera. So I think I would definitely be doing that as well and get them to confirm their understanding and that they're still happy to proceed. So assuming then for a moment, Nick, we've got an employee that's agreeing to go ahead with the conversation. Do we say that under section 11A, that's just then free rein for them to say whatever they like, even if they're perhaps, shall we say, you know, not being necessarily as perhaps. Well, I've tried to think how they might be using improper behaviour if we're using the correct legal language there because I think we need to be mindful as employers that there are limits within what we can say in this Section 118 conversation to make it compliant. Nick: Yeah, I think that's really important. And I think that's a good rule of thumb for any of these types of conversations. Notwithstanding us trying to put in place sections that make these conversations inadmissible that we, but Hannah and I both, you know, we've both seen that challenged. And therefore you almost have to enter these types of conversations whereby you be prepared that they might be before a judge. But I think really what you touched on there is this concept of improper conduct. and section 11A, there are expressed provisions in connection with that which state that where there is or is found to be improper conduct and that could include for example where we have put undue pressure on an individual to accept an offer, where we have perhaps committed inadvertently or intentionally some form of act of discrimination. that can remove the protection of Section 11A and mean that all of those conversations then become admissible in proceedings, which could be very compromising for any subsequent litigation. Hannah: Yeah, I think sometimes we see conversations which go down the route of. you have to accept this or we will dismiss you or you will be dismissed during any performance or disciplinary process. And certainly even if you're in a protected conversation, that is problematic for an employer, isn't it? So I think we sort of need to be really mindful. You can explain the possible consequences of a process, i.e. one possible outcome of the redundancy process would be your dismissal for redundancy. But we want to be really clear that it is not the case that any such process has already been determined. The thrust of your conversation needs to be that this is an alternative option and that they're not under any pressure at all to accept it and that they're not going to be prejudiced if they don't accept it. Ultimately, this is a voluntary process and we need to be clear that any outcome has not yet been determined. And I think that that is really important because I think sometimes there is a misconception that you can... ultimately say that any open process has already been decided. Because if you do that and an employee subsequently withdraws from negotiations and you then try and argue, ⁓ well, we haven't made any decisions yet and go through an open process, they're clearly going to assert, aren't they, that it's a sham and it's predetermined. And they also may say that that's discriminatory depending on the circumstances, the decision to then dismiss them. So I think that's really, really key. The other thing just to point out with the conversations is that the ACAS code I talked about a moment ago does reference the fact that even though there's no legal right to be accompanied during one of these meetings, it should be allowed as good practice. Our experience is certainly that that's extremely rare and that most often employers just are choosing not to allow them to be accompanied or will. manage it in a different way. For example, by saying, we are giving you the agreement and the full terms of the offer at the end of the meeting. If you want a further meeting, you can be accompanied at that meeting. I think in reality, a lot of people don't want a settlement offer to be discussed in the same room as another colleague. I think the main risk not allowing it is probably twofold. One, whether it could amount to an allegation that there's been undue pressure and that is therefore improper behaviour. My view on that is it's probably unlikely. We certainly, Nick, haven't seen any cases yet on that, have we? The other thing that it may well trigger is whether or not there would be a reasonable adjustment in, for example, a disability discrimination scenario if you don't allow it. You would obviously have to give consideration to that. But I think in reality... You would either not allow them to be accompanied in practice or you would just allow them to be accompanied by someone who is there at the time if they really wanted to. But I think I would be more, you know, more minded to get around it by saying, look, you don't have to accept the offer today, you've got time, we'll give you it in writing at the end. And if you want a subsequent meeting, you can be accompanied at that meeting if you wish to. Nick: And on that point, Hannah, would you suggest employers go to the meeting with a copy of the letter and the agreement which they're going to ask the employee to enter into? And also, what type of agreement are we talking about here? Hannah: Yeah, so I think yes, I would. I think in probably 99 % of cases, I can't see a reason why it wouldn't be prudent to have that ready, because the employee is immediately going to have questions, aren't they? And they're going to want to know the full detail of the offer. And whilst you're undoubtedly going to give the key terms in the meeting, you're not going to spell out every nuance, are you? And it will always be subject to contracts. It will be subject to that written agreement. And they actually have to have, under the ACAS code, 10 calendar days to consider that offer in any event. And that is starting to tick from the point at which they get that written offer and settlement agreement. So, you know, usually people are wanting to get this done sooner rather than later, aren't they? So I think on balance, that is definitely what I would do unless there were specific tactical reasons why we think that would overwhelm the employee. And I also think it is fine to be clear about what the fallback position is if the agreement isn't reached. i.e. you will continue with open processes, or if you're made redundant at a later date, for example, you will only receive your statutory entitlement, but it needs to be very factual and it needs to not be looking like we're making any attempt at pressurising them or making anything a foregone conclusion at this point. Nick: So think, sorry, in summary, more often than not, in the context of that offer being made in employment, it's likely that we're going to be offering them a settlement agreement and asking them to go and seek independent legal advice from their own advisor, which is a condition necessary for any settlement agreement to be legally binding. And whilst we're sort of, it's probably beyond the scope of what we discussed today. or sort of things that our employer is going to want to include within that type of settlement agreement. Hannah: think employees, they often say to us, well, that's quite a long document, don't they? Because it has got quite a few things in them. I think it's because there are certain statutory requirements that have to be met for that to be a legally binding settlement agreement. And ultimately, that is what we're trying to do, settle statutory claims. And so we do, more often than not, they are drafted by a lawyer to make sure they get those things in there. But key terms you're going to want in there are things like... what is happening with their notice. Are they being paid for that? Are they working or receiving a payment in lieu of notice? Is there any period of garden leave? Those types of things, clearly we're going to want to work out. Obviously a key negotiating point is what termination payment and settlement payment they're receiving. Ultimately, think that will be hot on the list, won't it? I think, yeah, that's why the work at the beginning of working out what your fallback position is. Nick: For the employee, certainly. Hannah: and what any potential claims could be is really key because otherwise we're just plucking figures out of thin air, aren't we, in terms of looking at what's an appropriate settlement. Obviously, there are also commercial considerations, potential legal costs, how quickly you want to exit, all those types of things that will feed in, but clearly it needs to deal with that. Ultimately... the purpose of it is to have as wide waiver of claims in there as possible, isn't it? Because ultimately what an employer wants to do if they're paying money is to draw a line in the sand and to ensure that we have effectively a clean break where in an ideal world, we're getting the employee to settle any and all claims, whether now or in the future. Now that is possible under a settlement agreement, subject to certain exceptions. so things like... they can still bring a claim in relation to accrued pension rights or future personal injury that they're not yet aware of. again, that's how getting that legal help with getting that document drafted is really useful because you want to make sure it's as robust as possible. Nick: often which is an important consideration for employers is that, I think you touched on it earlier, is that they'll want to, as far as possible, keep matters confidential. They won't want employees going and telling everybody that the employer's settled by claim because that might force or create a culture of other employees asserting claims purely with the desire to try and get money from the employer. Hannah: is a hot topic at the moment because you can use confidentiality provisions in settlement agreements at the moment. There's already certain exceptions that you have to set out, but very much the direction of travel is going to be that that is going to become more difficult for employers under the Employment Rights Act. There is going to be new provisions, which mean that any provision in an agreement, which is most likely to be a settlement agreement, a COP3 or an employment contract, which it says in those provisions that any clause or agreement that you have that prevents someone from either disclosing information in relation to relevant harassment or discrimination, or the employer's response to that is going to be void essentially. So really in simple terms, it means that it's going to be lot more difficult to stop people talking about potential harassment or discrimination or your response as a company to any allegations of that. at the moment is still under consultation as to whether there'll be exceptions to that. So things like where the employee wants there to be a confidentiality clause, it may be that that will be permitted. Certainly the government have said that they're not trying to stop all forms of confidentiality clauses. So, you know, they can still have clauses in there protecting their confidential information, et cetera, but they are going to put those provisions in place to prevent that. essentially gagging of information in relation to discrimination and harassment. We don't have the full details or an implementation date, but I think it's just an important thing to be aware of because it'll probably feed into your overall tactics as to one, whether you even want a settlement agreement or if so, what amount you're willing to offer. Nick: We talked about types of settlement agreements, the approach to that, and what to consider when putting in the agreement. Often where we are involved and where we see is the real sort of issues, that this is the negotiations which follow. If you could just give a couple of tips to employers of how best to deal with these negotiations, what would they be? Hannah: Yeah, that's a really interesting point because often I think there's so much hype about getting up to the point of getting the settlement agreement out. You forget that there's then that period of negotiation afterwards, isn't there, either with the employee director or their lawyer, for example. I think in terms of some key tips, I think one of the key ones is just be prepared to walk away. I think sometimes you can get so invested, can't you, in that that's what we're doing, we're negotiating an exit, that you can forget that... Sometimes we are just going to be poles apart. We're not going to get to a reasonable position. And it may be that we then do go back to the plan B. Nick: I was going to say that dovetails, think, my advice and what you spoke to earlier, is the importance of having that open position, I put in the context of the offer, be that a redundancy situation, a capability procedure, and being as robust in that as you possibly can. Because if you can be, and you're prepared to walk away from unreasonable negotiation position and pursue those concerns openly, be those through redundancy, be those through a capability process, that will put you in a good position to deal with unreasonable negotiation and not be a hostage fortune in that respect. Hannah: I think also. it can be really easy to get really flustered and a bit derailed when someone is very aggressive back. And sometimes you will get that particularly with lawyers on the other side who are removed from the situation. Obviously they're responding to their instructions, aren't they, from their employee, and they can be very aggressive and bullish. And they, of course, will try and pick holes in what you've said in terms of any potential redundancy, for example, or any other reason for dismissal. I think it's important to take a step back when that happens, assess what they've said and really look at, does that change the merits of our case? Does that change our position? Or really do we need to hold where we are and either not increase our offer or just increase it perhaps by a small amount as opposed to the half a million pounds they've certainly been requesting. Nick: Indeed. I think that's a really good point because also in addition to sort of understanding or reacting to the approach of the solicitor, the employee solicitor, there's also insight to be taken from the circumstances of the employee themselves. for example, you know, are they subject to cost limitations? Are there personal circumstances which might be influencing their negotiation position? are there any reputational concerns for them to be mindful of? And does that influence their bargaining position? you know, I think trying to, whilst at the same time not being derailed by a typical aggressive solicitor's letter, I think also be, or try and take insight from the circumstances of the employee as well, because you can use that as an employee, an employer to try and drive the best result for the company. Hannah: Absolutely, because I think often when you have these types of discussions, pragmatically the employee may not be at work while you're having them, most often because you've either placed them on garden leave or you may have agreed a period of paid leave if it is a particularly acrimonious situation. And actually, they may well then be of the mindset of, am going, I need to agree and exit, and that may help you. So I think absolutely the context of all of this and the commercial. considerations will feed into your negotiating position, won't they? Yeah. Well, hopefully that's been helpful for you. Some key tips there in terms of settlement negotiations, because as we say, unfortunately, I think there's probably only likely to be an increase of those as we see the ERA changes bedding in. Thank you very much for listening. Watch out for future employment law episodes. Please do get in touch if there's any future topics you'd like us to explore further. You can either leave a comment when you listen to the podcast or get in touch directly with Nick or I. And absolutely do go to our website and sign up for our unemployment updates, because we really do get involved in kind of sending regular updates to you guys about what you need to know in terms of employment law updates. And we also hold regular events. So please do engage with us on that and watch out for more from us.