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Settlement agreements and constructive dismissal


The Claimant was a financial controller working for Lenlyn UK Ltd (“the Company”). The Company discovered £1.9 million missing as a result of a fraudulent contractor and had a report prepared by an external forensic accountant. The forensic accountant did not think that the Claimant had been dishonest but that the Claimant’s conduct in his role as financial controller “could be considered negligent”. The report recommended that the Company consider undertaking a disciplinary investigation.

However, rather than going down the disciplinary route, the Company decided that it would make an offer to the Claimant to terminate his employment in a ‘protected conversation’. Evidence of protected conversations are not normally admissible in ordinary unfair dismissal claims unless there has been ‘improper behaviour’.

The Claimant was called to a meeting on 16 December and told by the HR manager that the forensic accountant had indicated that he had been “grossly negligent” and that the Company was considering commencing disciplinary action. The HR manager gave the Claimant the proposed settlement agreement and said that he should think about it and get back to her by 22 December. The Claimant was told he did not have to attend work in the meantime.

After the meeting, the Claimant tried to remotely access his emails to set an out of office but found that his access had been blocked.

The Claimant rejected the settlement agreement and resigned, bringing a claim for constructive unfair dismissal in the Employment Tribunal.


The Employment Tribunal found that the fact that the Claimant had not been given reasonable time to consider the offer and the fact that the HR manager had misrepresented what was contained in the forensic accountant report, meant that the details of the ‘protected conversation’ were admissible under the impropriety exception. The Employment Appeal Tribunal upheld the decision that the Claimant had been constructively unfairly dismissed as the Company had pre-judged the issue and decided that it no longer intended to be bound by the contract of employment.


Before making any offer to terminate employment under a settlement agreement by way of ‘protected conversations’ or ‘without prejudice discussions’ it is recommended that a formal procedure is started first to demonstrate that dismissal is not predetermined. Employers should also ensure that an employee is given reasonable time to consider any offer and is not placed under tight time constraints.

 If you would like to speak to us about settlement agreements, please feel free to email us  or contact us on 0191 282 2880 for a no obligation chat.


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