Compromise Agreements

What is a Compromise Agreement?

If an employer is looking to terminate an employee’s contract of employment or the employee is looking to end his contract of employment with an employer then either one could propose to the other that they enter into a Compromise Agreement. The general rule is that no employee can enter into an agreement whereby they are not able to pursue a claim in the Employment Tribunal for, say, unfair dismissal or discrimination.

However this general rule is subject to four main exceptions: (1) there could be a settlement within a decision of an Employment Tribunal which will conclude matters or (2) a settlement reached through an ACAS official can conclude matters or (3) a settlement under a dismissal procedure agreement (which is approved by the Secretary of State) can resolve matters whereby no claim can be pursued, and (4) the most common exception currently being used is that of a Compromise Agreement.

A Compromise Agreement must be in writing and must relate to a contract of employment between an employer and an employee. The employee must receive advice from a fully insured independent legal advisor as to the implications for the employee to enter into and agree to the Compromise Agreement.

It is called a Compromise Agreement because both parties are compromising their respective positions. The employee will have a prospective claim in the Employment Tribunal as to one or more issues against the employer – but the employee is prepared to compromise these rights to pursue a claim on the basis that similarly the employer compromises its obligations to the employee by paying to the employee a sum which is greater than that which the employee is entitled to under his or her contract of employment. Therefore a payment of only notice pay should not amount to the only payment within the Compromise Agreement unless there is good reason why the employee would otherwise receive less than what he is entitled to contractually.

When may a Compromise Agreement be used?

A common use of a Compromise Agreement is where an employee has a new line manager. The new line manager and the employee do not see eye to eye on matters and as a result of that, the line manager (whether or not there is a good basis to do so) has recommended that disciplinary proceedings be taken against the employee because the employee has failed to achieve a target which the line manager has set which is quite high. The employer could then pursue matters on the basis the employee is not carrying out his duties efficiently and that there is some lack of capability whereas the employee may consider that there is a deliberate attempt to undermine and prevent his being able to achieve the target and that there is a significant breach in the mutual trust and confidence which should exist between the employee and the employer. Either party in those circumstances could say to the other why don’t we just enter into a Compromise Agreement – the employee will agree not to pursue Tribunal proceedings and the employer will pay off the employee as a result. The employee will then receive a greater sum than what he would otherwise achieve (and without there being a blemish on his record due to any disciplinary proceedings) and the employer will not have what it considers a troublesome employee any longer on the books.

I have over twenty years experience of giving advice and assistance to employees on employment matters and have dealt with many Compromise Agreements.

I have also acted for employers and prepared Compromise Agreements and/or met with a dozen or so employees of an organisation at the work place. The employer is responsible for paying the reasonable costs of the independent and insured legal representative of the employee and I have entered into agreements for an overall sum with employers as to the costs of my meeting with say half a dozen or so employees who are leaving at around the same time which is cost effective for the employer.