Compromise Agreements

A Compromise Agreement is a legally-binding agreement between an employer and an employee which usually provides for, or follows, the termination of employment.  In most cases the employer agrees to make a severance payment in exchange for the employee’s agreement not to bring or pursue an Employment Tribunal claim.

A Compromise Agreement is recognised by statute, but must comply with precise legal requirements regarding its formation, both in terms of wording and the legal advice that the employee must receive.

Employers have traditionally used a Compromise Agreement in situations where an employment relationship has broken down, or where there are serious issues with an employee’s performance which make it too costly to proceed along a performance management route.  They are also increasingly used in redundancy situations as a condition for an employee’s receipt of an enhanced redundancy payment.

Employers must be extremely careful, however, when discussing the possibility of a Compromise Agreement with an employee.  The mere fact of raising the issue of a Compromise Agreement can found a claim of Unfair (Constructive) Dismissal, even where the employer refers to such conversations as “without prejudice.”

There are also significant dangers in amending an “off the shelf” Compromise Agreement.  The courts have determined that for a Compromise Agreement to be binding in preventing an employee from bringing an Employment Tribunal claim it must refer to the particular complaints the employee may have and the statutory provisions which govern them.  A standard Compromise Agreement which does not reflect the particular claims is unlikely to be enforceable, and the employer may be unable to recoup any payments already made.

At Simplaw we can provide clear, business-focused advice on the use of a Compromise Agreement in any situation, and where this is the best option for the business, we can draft a legally compliant agreement which provides maximum protection against future claims.  We will also conduct all necessary communication with the employee’s solicitor.

If you are considering the use of a Compromise Agreement, or have already agreed terms with an employee and simply require an agreement to be put in place, please contact us to discuss how we can help.
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