How-to guide: The framework for resolving employment disputes in England and Wales

Introduction

This how-to-guide will assist in-house counsel, private practice lawyers and human resources professionals working in England and Wales to understand the different procedures open to them to resolve employment disputes. This guide does not apply to Northern Ireland, where employment law is devolved to the Northern Ireland Assembly, or to Scotland, where the management and operation of employment tribunals is devolved to the Scottish Parliament. This guide is focused on disputes between employers and individual employees, and not on collective disputes between employers and trade unions.

This guide covers:

The benefits of dispute resolution
Internal resolution
Without prejudice communications
Protected conversations
Alternative dispute resolution (ADR)
The role of ACAS
Employment tribunals
Judicial mediation
Employment tribunal ADR
Settlement agreements

This guide can be used in conjunction with How-to guides: Overview of employment law (UK) and How to carry out a fair termination of employment (UK) and Checklists: Carrying out a disciplinary process (UK) and Carrying out a capability process (UK).

Employers should be aware that the Employment Rights Bill 2024, introduced on 10 October 2024, aims to significantly enhance worker protections in the UK. Key provisions include granting day-one rights for unfair dismissal, paternity, parental, and bereavement leave, changes to sick pay and flexible working rights, protections against zero-hours contracts and restrictions on the use of ‘fire and rehire’ practices. New legislation will be introduced throughout 2025 and 2026. Further information can be found at UK Parliament: Employment rights bill and Employment Rights Bill: factsheets.

Section 1 – The benefits of dispute resolution

Litigation is expensive, both financially (in particular in the employment tribunal, where the winner is unlikely to have their costs paid by the loser of the claim), but also in terms of workforce morale, especially when the employee suing the employer remains employed by the same employer during the dispute. Employers can also face reputational damage and any associated publicity resulting from being named in litigation.

Litigation is also something of a lottery, with the parties placing their dispute in the hands of a panel of people who may view the dispute entirely differently to one, or even both, of the parties to the dispute.

There are various ways to resolve an employment dispute prior to litigation. Many of these enable the employer and the employee to have control over the process and outcomes, and many are a lot quicker and less expensive than litigating.

Section 2 – Internal resolution

Many workplace disputes can be resolved internally by following structured procedures designed to facilitate both communication between employers and employees and resolution of issues in the workplace.

2.1 Company policies and procedures

Every organisation should have clear written policies and procedures for handling employment disputes. These typically include those listed below.

Grievance policy and procedure: formal steps for employees to raise concerns or complaints about workplace issues;
Disciplinary policy and procedure: formal steps for managing employee misconduct (see Checklist: Carrying out a disciplinary process (UK)); and
Performance management policy and procedure: formal steps for managing poor performance (see Checklist: Carrying out a capability process (UK)).

These procedures should comply with the Acas Code of Practice on disciplinary and grievance procedures, which provides guidelines for fair treatment of employees during disciplinary and grievance processes.

2.2 Informal discussions with employee

Open communication is key to resolving disputes early. Managers should encourage employees to voice concerns and aim to address issues informally where possible. Steps employers can take include those listed below.

Informal meetings: arrange a meeting with the employee to discuss their concerns confidentially.
Active listening: ensure that the employee feels heard and understood.
Resolution: explore any options available to resolve the issue without further escalation.
Clarification and documentation: clarify the issues and document the discussion and any agreed actions.

Section 3 – Without prejudice communications

Without prejudice communications are a commonly used mechanism during workplace disputes. They can be used at an early stage between an employer and an employee, as well as between legal representatives during litigation.

3.1 Meaning of without prejudice

The term ‘without prejudice’ is used in the context of negotiations to settle disputes. The rule is that any communication made with the intention of settling a dispute cannot be used in court or tribunal proceedings if the negotiations fail. This allows the participants to speak freely and make concessions without fear that their words will be used against them later. The rule is founded on the principle of encouraging settlements and is applicable only when there is an existing dispute, and the communications are made in a genuine attempt to resolve it.

3.2 When to use without prejudice

Without prejudice communications can be verbal or written and are typically used when an employer and employee are engaged in a dispute and wish to explore settlement options without the risk of admissions being used against them in potential litigation. For the rule to apply, there must be an existing dispute. For example, this could arise from situations such as grievances, disciplinary actions or even during redundancy processes. It is vitally important that any communication explicitly states it is ‘without prejudice’ to ensure the protection is recognised.

3.3 Conducting without prejudice discussions

To conduct a without prejudice discussion effectively, it is important to follow the principles set out below:

Initiation: clearly state at the outset that the discussion is ‘without prejudice’. This should be done both verbally at the start of any meetings and in any written communications. If an employer asks an employee if they are willing to speak on a without prejudice basis and the employee declines, the discussion should not continue.
Documenting: label all correspondence and notes from the discussion with ‘without prejudice’. This helps in establishing the intent behind the communication.
Good faith: ensure that the discussion is a genuine attempt to settle the dispute. The courts and tribunals will not protect communications if they are used as a cover for improper conduct, such as blackmail or fraudulent behaviour.
Clear terms: discuss and document the terms of any proposed settlement clearly. It is often advisable to draft a summary of the terms discussed during a without prejudice discussion and to seek confirmation from the other party that the terms are understood and agreed upon as a framework for further negotiation.

Section 4 – Protected conversations

Whilst without prejudice discussions are used in many areas of legal dispute, protected conversations apply only to employment disputes.

4.1 Definition and legal context

Protected conversations, also known as ‘pre-termination negotiations’, were introduced under section 111A of the Employment Rights Act 1996 (ERA 1996). They allow employers and employees to engage in off-the-record discussions about ending employment on mutually agreed terms, without fear that the content of these conversations will be used as evidence in unfair dismissal claims. However, it is crucial to note that (unlike without prejudice, which can be used in relation to any dispute) this protection does not extend to cases involving discrimination, whistleblowing or other automatically unfair dismissal claims.

The scope of protected conversations is wider than the without prejudice rule in that there does not need to be an existing dispute between the parties, so a protected conversation can come ‘out of the blue’ to one of the parties. So, for example even before the commencement of performance management processes an employer could instigate a protected conversation with an employee.

4.2 Conditions for protected conversations

For a conversation to be protected under section 111A ERA 1996, certain conditions must be met. As well as the limit on the type of dispute mentioned above, employers must not engage in improper behaviour. A non-exhaustive list of examples of this are set out in the Acas Code of Practice for Settlement Agreements and include harassment, bullying, discrimination or applying undue pressure. Examples of undue pressure include threats of immediate dismissal if the employee does not accept the offer or providing unreasonably short time frames for decision-making.

4.3 Benefits and limitations of protected conversations

Employers can gain the following benefits when using protected conversations with employees:

Confidentiality: the primary benefit is the confidentiality afforded by these conversations. Not only is the content of the conversation confidential, but the very existence of the conversation cannot be referred to in any subsequent litigation.
Flexibility: employers and employees can negotiate terms without existing disputes, providing greater flexibility in managing employment relationships.

Protected conversations are subject to the following limitations:

Limited scope: protected conversations only apply to ordinary unfair dismissal claims and not to claims involving discrimination or those forms of dismissal that are automatically unfair, such as whistleblowing.
Risk of impropriety: if an employer engages in improper behaviour, the protection is lost, and the conversation can be used as evidence in legal proceedings.
Employee suspicion: employees might be wary of these conversations, perceiving them as a prelude to unfair dismissal without proper cause.

For further information about unfair dismissal generally, see How-to guide: How to carry out a fair termination of employment (UK).

Section 5 – Alternative dispute resolution (ADR)

Alternative dispute resolution (ADR) encompasses various methods that can be used to resolve employment disputes without resorting to litigation. ADR is generally quicker, less formal, and often more cost-effective than going to court or a tribunal. In the context of employment disputes, ADR can include mediation, arbitration and conciliation. See also sections 8 and 9 below for information about judicial medication and employment tribunal ADR.

5.1 Mediation

5.1.1 Process of mediation

Mediation involves a neutral third-party mediator who facilitates discussions between the parties to help them reach a mutually acceptable agreement. The mediator does not impose a decision but works to help the parties communicate more effectively and explore potential solutions. The process is voluntary and confidential. Mediation is a commonly used form of ADR in workplace disputes.

5.1.2 Role of the mediator

The mediator’s role is to facilitate communication, encourage understanding and assist the parties in identifying their underlying interests and needs. The mediator helps to structure the discussions, keep them focused and ensure that each party has an opportunity to express their views. Mediators are trained to manage conflict and guide parties towards resolution without taking sides.

5.1.3 Advantages of mediation

Mediation offers several benefits for resolving workplace disputes, including the following:

Confidentiality: the mediation process is private and takes place on a without prejudice basis, with the details not disclosed to anyone outside the mediation.
Control: the parties retain control over the outcome, as they are not bound by a decision imposed by a third party.
Preservation of relationships: mediation can help preserve professional relationships by fostering cooperative problem-solving.
Cost and time efficiency: mediation is typically quicker and less expensive than litigation.

5.2 Arbitration

Arbitration involves a binding decision made by an arbitrator or a panel of arbitrators. The process is more formal than mediation and resembles a court proceeding but is usually less complex and more flexible. The parties must agree to submit their dispute to arbitration, often through a clause in the employment contract.

Arbitration decisions are binding and enforceable in the same way as court judgments. This means that the parties must adhere to the arbitrator’s decision, and there is limited scope for appeal. This finality can provide certainty and closure to the dispute.

Arbitration is rarely seen in employment disputes in England and Wales.

5.3 Conciliation

The Advisory, Conciliation and Arbitration Service (Acas) provides conciliation services to help resolve employment disputes. Acas conciliators are neutral third parties who help the disputing parties reach a settlement. Conciliation is particularly useful for resolving disputes before they escalate to formal tribunal claims. Conciliation can be requested by an employer, although it is more commonly requested by employees and is also a mandatory step before employees can issue an employment tribunal claim (see section 6 below).

Conciliation offers several advantages which are set out in 6.1 below.

Section 6 – The role of Acas

Acas (Advisory, Conciliation and Arbitration Service) is an independent public body funded by the government, designed to improve workplace relationships and resolve employment disputes. In addition to providing general conciliation services referred to at 5.3 above, Acas has a number of functions, including:

Providing free and impartial guidance to both employers and employees on a wide range of employment-related issues, including employment rights, best practices and conflict resolution.
Providing guidelines on handling disciplinary and grievance procedures in the workplace through the Acas Code of Practice on disciplinary and grievance procedures. Adherence to this code is not legally mandatory but is highly recommended, as employment tribunals take it into account when deciding cases. Those who fail to follow the Acas Code may find the compensation that is awarded is increased or reduced to reflect a failure to comply with the code.
Managing the mandatory early conciliation process described in 6.1 below.
Facilitating COT3 agreements (see section 10.2 below).

6.1 Early conciliation process

Early conciliation via Acas is a mandatory step before an employee can file a claim with the employment tribunal (see Acas website: Early conciliation). The process involves an ACAS conciliator who facilitates discussions between the employer and employee to reach a settlement without going to tribunal. This service is free and confidential, and it aims to save time and costs associated with litigation. If conciliation fails, ACAS issues a certificate allowing the employee to proceed with an employment tribunal claim.

Involving Acas in resolving employment disputes offers several benefits:

Impartiality: Acas provides an impartial platform for resolving disputes, ensuring that neither party has an unfair advantage.
Cost-effective: Acas services, including early conciliation, are free, helping both employers and employees save on legal costs.
Confidentiality: the conciliation process is confidential, preventing the details of the dispute from becoming public.
Expertise: Acas conciliators are experienced in handling employment disputes and can provide valuable insights into potential outcomes and resolutions.

Section 7 – Employment tribunals

Employment tribunals are specialised judicial bodies that resolve disputes between employers and employees over employment rights. They are designed to handle a wide range of issues including unfair dismissal, discrimination, wage disputes and breaches of employment contracts. Employment tribunals can also deal with collective claims issued by groups of employees, often backed by trade unions. Tribunals aim to provide a more accessible and less formal setting than traditional courts, with procedures that are quicker and less costly. Many employment tribunal hearings are dealt with by an employment judge sitting alone, whereas discrimination claims or other claims lasting more than one day are heard by a panel comprising one employment judge and two laypeople.

The typical stages of an employment tribunal claim are similar to those seen in the civil courts and include the following steps:

claim is filed with the employment tribunal;
response is filed by the employer;
exchange of documents that are relevant to the dispute;
exchange of witness statements;
list of agreed issues; and
final hearing.

More complex tribunal cases will also involve one or more preliminary hearings (either to deal with general case management or specific issues) and exchange of skeleton arguments.

There is no presumption of costs in the employment tribunal, meaning that each party bears their own costs regardless of the outcome, unless a party has engaged in unreasonable or vexatious behaviour either in bringing the claim or their conduct during the proceedings.

Although the majority of employment related claims can only be heard in an employment tribunal, certain contract-based claims may be issued in the civil courts as an alternative. A party who is dissatisfied with the outcome of employment tribunal proceedings may seek appeal to the Employment Appeal Tribunal (EAT), followed by the Court of Appeal and then the Supreme Court.

The Employment Tribunal Procedure Rules 2024 came into force on 6 January 2025, replacing the previous rules.

Section 8 – Judicial mediation

Judicial mediation is a process where an employment judge facilitates the resolution of a dispute between an employer and an employee. This type of mediation takes place within the framework of the employment tribunal system and whether it is to be offered is considered at a preliminary hearing for case management. Unlike other forms of ADR, judicial mediation involves an employment judge who uses their expertise to help the parties reach a mutually acceptable agreement. The judge does not decide the case but helps guide the parties towards a settlement. The process is typically voluntary and confidential, encouraging open and honest dialogue

8.1 When to consider judicial mediation

Judicial mediation is particularly useful in complex or high-value cases where the parties have been unable to resolve the dispute through other means. It is often considered when legal expertise is beneficial, as the involvement of an employment judge, who has extensive knowledge of employment law, can be beneficial in understanding the legal nuances and potential outcomes of the case. Judicial mediation can also be helpful in cases where maintaining a professional relationship is important, as it avoids the adversarial nature of a tribunal hearing. This is particularly beneficial where the claimant is still employed by the respondent.

8.2 Process and procedure

The process of judicial mediation typically involves several key steps:

Application: either party can apply for judicial mediation, or it can be suggested by the tribunal.
Preparation: both parties prepare for the mediation by gathering relevant documents and evidence, and identifying key issues.
Mediation session: the mediation session is usually held at an employment tribunal office, although remote mediations have become more prevalent. The employment judge facilitates the session, encouraging open dialogue and helping the parties explore potential solutions. The judge may meet with the parties separately (caucusing) or together, depending on the needs of the case.
Settlement agreement: if the parties reach an agreement, it is typically formalised in a type of written settlement agreement approved by Acas, called a COT3. This agreement is binding and enforceable. If no agreement is reached, the case proceeds to a tribunal hearing, although often the momentum built at the mediation carries over and settlement discussions continue.

The benefits of judicial mediation include:

Cost savings: resolving disputes through mediation can significantly reduce legal costs and expenses associated with prolonged litigation.
Time efficiency: judicial mediation can expedite the resolution process, allowing both parties to move forward more quickly.
Confidentiality: the confidential nature of mediation ensures that sensitive information discussed during the process is not disclosed publicly.
Control over outcome: unlike a tribunal decision, which is imposed by the judge, mediation allows the parties to retain control over the resolution of their dispute.

Section 9 – Employment tribunal ADR

A recent development is the employment tribunal carrying out ADR hearings themselves. On cases with a forecast duration of six or more days, some tribunals will conduct a Dispute Resolution Appointment ("DRA") hearing. This will take place after the case is prepared and ready for final hearing and the employment judge conducting the DRA hearing will have before them a small selection of papers from the final hearing bundle and the witness evidence. The process is more evaluative than in a judicial mediation and the employment judge will give the parties an assessment of their view of the prospects of success of the claim or response.

Section 10 – Settlement agreements

Settlement agreements are legally binding contracts used to resolve disputes between an employer and an employee without the need for litigation. They are very commonly used to settle employment disputes in England and Wales and can be entered into at any stage of a dispute, usually following a protected conversation, a without prejudice discussion or some form of ADR.

Previously known as ‘compromise agreements’, these agreements were renamed in 2013 to better reflect their purpose. Settlement agreements typically involve the employee receiving a financial settlement in exchange for waiving their right to bring claims related to their employment to a tribunal. They can also cover other outcomes including the ending of employment and confidentiality obligations (although note that there are limits on the extent to which non-disclosure agreements can be used – see the Solicitors Regulation Authority Warning notice on the use of non disclosure agreements).

10.1 Key elements of a settlement agreement

For a settlement agreement to be legally enforceable, several key elements must be present:

Written agreement: the agreement must be in writing to be valid.
Specified claims: the agreement must specify the particular complaints or proceedings being settled. This ensures that both parties understand the scope of the agreement and the rights being waived.
Independent legal advice: the employee must receive independent legal advice on the terms and effect of the agreement, particularly on the waiver of their rights. This advice must be provided by a qualified adviser, such as a solicitor or barrister, to ensure that the employee is making an informed decision.
Identification of adviser: the agreement must identify the legal adviser and confirm that their advice is covered by professional indemnity insurance.
Compliance with legal requirements: the agreement must state that the statutory conditions regulating settlement agreements have been satisfied, as outlined in various statues (including the Employment Rights Act 1996 and the Equality Act 2010).

10.2 COT3 agreements

A COT3 agreement is a type of settlement agreement that is facilitated by Acas. The main difference between a COT3 agreement and a settlement agreement is that employees entering into a COT3 agreement are not required to seek independent advice or to identify their adviser, because Acas has been involved in the negotiations leading to the COT3. Acas are therefore usually unwilling to facilitate a COT3 agreement unless they have been involved in the conciliation process that led to the settlement.