Settlement agreements are designed to settle actual or potential claims or the terms on which an individual’s employment comes to an end. Negotiating them can be highly sensitive.

In difficult situations, especially those involving claims of unlawful discrimination or whistleblowing, the allegations an employee makes can be damaging to the organisation. They can also be damaging, in reputational, career and personal terms, to those individuals against whom the allegations are made, even if they prove to be unfounded. Employees may make complaints about their own treatment and threaten to disclose matters which do not relate, either directly or at all, to their own situation. They may make serious allegations about regulatory breaches elsewhere in the business, or misconduct by senior executives, whether professionally or in their private lives.

Those being accused of misconduct may feel they are being blackmailed into acceding to the employee’s settlement demands. This is especially the case if they consider the employee is seeking compensation far in excess of what the claim is worth, perhaps because the claim is considered to be weak or the employee wants more in terms of financial compensation than the tribunal would award even if the claim succeeded. But does this really constitute blackmail?

The criminal offence of blackmail requires all the various elements of section 21 of the Theft Act 1968 to be satisfied. To be guilty of blackmail, a person must make a demand, either expressly or by implication, which is ‘unwarranted’ and made with ‘menaces’, with a view to making a gain for themselves or someone else, or with the intention of causing loss to someone.

In this context the ‘gain’ would be an enhanced severance or settlement package. To constitute ‘menaces’, the threats must be such that an ordinary person, of normal stability and courage, might be influenced or made apprehensive by them so that they agree unwillingly to the demand. Effectively the demand must be a serious enough threat to influence a person of normal robustness to give in to it.

A demand will be unwarranted unless the person making it believes that he or she has reasonable grounds for making it and that using menaces is a proper means of enforcing it. Depending on the circumstances the threat of inappropriate behaviour towards the employer - in terms, perhaps, of disclosure of personal issues not connected with the employment dispute in question - may constitute an ‘unwarranted demand’ as would more obviously a threat of violence.

Of course, an employee setting out his or her allegations, saying what they believe their claims are worth, and seeking compensation accordingly on the basis that the individual will issue legal proceedings if agreement is not reached (including all that potentially entails in terms of costs, publicity, management time and so on) will usually come nowhere near to committing blackmail in the true technical sense. The fact that the individual’s intentions and beliefs are central to the legal definition of blackmail mean that it is often far from straightforward to establish that an offence has been committed.

However, there may be extreme cases where the employer may need to respond appropriately to what may constitute the criminal offence of blackmail. For example, an employee may, in order to leverage the negotiation, threaten to make public some alleged personal misconduct of a manager in his or her private life which has nothing to do with the subject matter of the actual or potential dispute between the employer and employee.

If an individual’s conduct does constitute blackmail, it will not be protected by the fact that the demand was made in the course of a ‘without prejudice’ negotiation which would otherwise mean that it could not be referred to in legal proceedings.

If faced with a threat which could be blackmail, the employer will need to decide how to respond. Options include complaining to a relevant authority such as the police, or seeking to close the matter down by correspondence making clear the employer’s view of the employee’s conduct and warning of the potential consequences. It may even be necessary to consider legal proceedings to restrain the employee from making the allegations public, especially if they constitute defamation. In this sort of situation the employer will need a considered and proportionate response.

This article was first published by CIPD in October 2015.