The recent case of Gallagher v McKinnon's Auto and Tyres Ltd [2024] EAT 174 is a rare decision on pre-termination negotiations. The Employment Appeal Tribunal (EAT) considered if the employer's behaviour during a discussion was improper under section 111A(4) of the Employment Rights Act 1996 (ERA 1996), which would mean that the pre-termination negotiations could be referred to and used as evidence in an unfair dismissal claim. 

The law on "protected conversations"

Having a protected conversation with an employee in accordance with section 111A of the ERA 1996 allows an employer to have an "off the record" discussion with an employee it wants to exit the business. Often the desire for termination arises from disciplinary, capability or redundancy issues and putting forward a settlement offer can be the quickest, cleanest solution for all parties. Unlike "without prejudice" conversations, there doesn't need to be an existing dispute. The benefit of having a protected conversation is that it will be inadmissible as evidence if an unfair dismissal claim is brought against you by the employee. 

Note, however, that any such conversations do not benefit from the same protections and can be used as evidence in automatic unfair dismissal claims and discrimination claims. 

Furthermore, for conversations which could be protected, if anything said or done is deemed improper by the tribunal, for example using offensive language, aggressive behaviour or putting undue pressure on the employee (for example by saying they will be dismissed if a settlement proposal is rejected), the pre-termination negotiations will be deemed admissible. 

Facts

Mr Gallagher was employed as a branch manager by McKinnon's Auto and Tyres Ltd. In 2022, he caught COVID and then unfortunately broke his foot and was off sick for a couple of months. The company covered his work during his sickness absence and decided that they could continue without a branch manager.

He was invited to a meeting to discuss his return to work. The meeting was stated to be off the record and his employer proposed an exit package, which involved terminating his employment for redundancy and paying him £10,000. His employer explained that if he accepted the offer then the parties would enter into a binding settlement agreement but if he rejected it, then the company would start a redundancy procedure. Mr Gallagher was given 48 hours to consider the offer. After the meeting he requested a breakdown of the settlement payment, which the company quickly provided. Mr Gallagher didn't accept the offer and was later dismissed for redundancy.

Employment tribunal decision

Mr Gallagher brought a claim for unfair dismissal and sought to rely on the meeting that took place as evidence of the unfairness of his dismissal. At a preliminary hearing, the tribunal held that the discussions were protected conversations under section 111A and were therefore inadmissible. The tribunal said the meeting had been conducted in a calm and measured way, where the offer of compensation and reference to redundancy wasn't unreasonable, and it wasn't necessarily a foregone conclusion that Mr Gallagher would be made redundant.

Appeal

Mr Gallagher appealed to the EAT on perversity grounds, arguing that the following behaviours were improper and put him under undue pressure:

  1. Being told if he didn't accept the offer a redundancy process would begin amounted to a statement that he would be dismissed
  2. Setting up the meeting under false pretences as a return to work discussion
  3. Giving him only 48 hours to respond to the offer.

The EAT dismissed his appeal, rejecting all of his objections:

  1. Mr Gallagher had been told that his duties could be covered by other staff but this didn't mean that he would be dismissed if he rejected the settlement proposal. A redundancy process would have begun and Mr Gallagher could have been offered alternative employment so he might not have been dismissed.
  2. The EAT said it might not have been fair for the employer to use a discussion about Mr Gallagher's return to work as a pretext for offering him a package but this didn't constitute impropriety. Mr Gallagher was quickly provided with a breakdown of the offer and he was given time to discuss it with his family.
  3. The period of 48 hours only related to whether Mr Gallagher would accept a verbal offer. If he'd accepted it, then pre-termination negotiations would have continued and it was likely that he would have been given a settlement agreement to consider. The EAT agreed with the tribunal's conclusion that the 48 hour timescale didn't subject Mr Gallagher to undue pressure.

Key takeaways

This decision reminds employers that they can engage in a discussion with an employee about a potential settlement if it's presented as an option with a genuine and lawful alternative. If the choice in this case had been between the settlement offer and being dismissed as redundant, it's unlikely that the tribunal or the EAT would have said that the negotiations were a protected conversation.

The tribunal and the EAT made a distinction between the verbal offer that was made to Mr Gallagher and a situation where a draft written settlement agreement is provided to an employee. The Acas Code of Practice on settlement agreements suggests employees should be given 10 days to consider the terms of a written offer. This allows an employer to give a short deadline for an employee to consider a verbal offer before they provide a settlement agreement that sets out all of the details.

Mr Gallagher believed he'd been lured to the meeting under false pretences but both the tribunal and the EAT said that this was acceptable because an employer might need to find a reason to get an employee to attend a meeting so that they can have a protected conversation. 

This can be a complex area to navigate and it's easy to get it wrong. If you're considering having a pre-termination negotiation with an employee, get specialist advice from one of our employment lawyers who can support you to get it right and manage the risk.

This article is for general information only and reflects the position at the date of publication. It does not constitute legal advice.