Using Compromise Agreements to Resolve Workplace Disputes

by Employment Blawg on July 16, 2012

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The following is a guest employment law blog post regarding the use of compromise agreements to resolve workplace disputes.

Dispute resolution is vital and any failure to engage in dispute resolution could lead to either an employer or an employee being penalised by an employment tribunal if the dispute results in litigation.

There are several ways of resolving workplace disputes some informal others more formal. Informal dispute resolution usually involves discussions between employees and their managers. The more formal approach is to either engage in mediation or if the dispute cannot be resolved a compromise agreement.

What are Compromise Agreements?

Compromise agreements are legally binding contracts between employers and employees that amicably terminate employment contracts. Compromise agreements can be entered into during or after employment and they usually provide the employee with a severance payment in exchange for the employee agreeing not to peruse a claim against their employer in an employment tribunal. The amount of this severance payment will be calculated in accordance with legal guidelines taking into account your length of service, your salary and the circumstances under which your employment is being terminated.

Compromise agreements are most common following redundancy or where the employee’s employment is being terminated due to irreconcilable differences between the employer and the employee.

In order for a compromise agreement to be legal it should comply with the Section 203(3) of the Employment Rights Act 1996 as follows:

  • It must be in writing
  • Must relate to particular proceedings (compromise agreements cannot be brought to resolve all potential employment rights claims)
  • The employee must have received independent legal advice from a named adviser (see below)
  • Confirm that Sections 203 of the Employment Rights Act 1996 has been complied with

The most common grounds for using compromise agreements are as follows:

  • To remove an employee following misconduct
  • To avoid a claim in the employment tribunal following redundancy
  • Removing senior employees without embarrassment
  • To preserve relationships with former employees

What Should I Look Out For?

Most compromise agreements, whilst filled with legal terminology, will follow a common format covering clauses about ongoing confidentiality, non-solicitation, agreed wording of references, returning the employer’s property, restrictions on your next job and so on. The most important thing to check is whether the compromise agreement accurately records the agreed severance payment. You should also check that you can receive the first £30,000 without deductions and that you are satisfied with the scope of your employer’s reference.

Most clauses, even those that appear onerous at first, will be standard. One such clause will be that neither the employer nor the employee can make negative comments about the other following the termination of employment.

In any event you should take legal advice before entering into a compromise agreement and most compromise agreements will in fact have a clause ensuring that not only has the employee had the benefit of legal advice but that it is being paid for by the employer (usually fixed up to a certain amount). Seeking the advice of an employment solicitor is important because they will be able to calculate whether the employer has calculated the severance payment accurately and may even be able to negotiate a larger payment on your behalf. If any accidents at work have occurred during your period of employment you should contact injury lawyers rather than employment solicitors.

Advantages of Compromise Agreements

Compromise agreements can act as a catalyst towards a clean break and provide certainty to all parties. They are also a cost effective and less stressful way of terminating the employment relationship in comparison to bringing or defending a claim in an employment tribunal. They are an effective form of dispute resolution and are encouraged by the Department for Business Innovation and Skills (BIS), the courts, employment tribunals and the Advisory, Conciliation and Arbitration Service (ACAS).

Compromise agreements can prevent formal disputes and provide a legally binding settlement. Compromise agreements are so effective they are increasingly being used by employers even when there is no dispute with the employee just to ensure that there is no possibility of the employee bringing a future claim. Compromise agreements provide a further advantage for the employer because it can prevent a public hearing in which their name could become tarnished.

Contact an employment law expert

For expert advice on compromise agreements it is highly recommended that you speak to an employment lawyer. Any questions, queries or comments welcome below.

Employment Blawg

Employment Blawg

Employment law blogger at LabourBlawg
LabourBlawg is an employment blawg, sharing the best employment law blogs from our contributors. Contact us to find out how to get your employment law intelligence published and shared to wide audience today.
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