What Exactly is a Compromise Agreement?

by TSMS on March 21, 2013

  • SumoMe

A compromise agreement is a formal and legally binding agreement between an employer and an employee which prohibits the employee from proceeding with a complaint to an Employment Tribunal. To be effective it must comply with Employments Rights Act 1996, s.203. It will normally have come about where an employer wants to terminate an employee’s contact of employment and wants to avoid the chance of an application being made to an Employment Tribunal

Unfortunately I often come across agreements that do not comply with the Act. Sometimes the Agreements don’t specify why the employment has come to an end whilst others don’t specify what claims the employer requires protection from. This can lead to a situation where the agreement isn’t valid and doesn’t prevent the employee going to the Tribunal, which was always the employer’s main concern in the first place.

Another requirement of the Act is that the employee must receive independent legal advice from a qualified legal advisor .Usually the employer will make a contribution to the legal costs. These are normally in the region of £200 to £500. Perhaps some employers are unaware of the Act’s requirements, or perhaps they don’t want to pay legal costs, but in any event some employers will attempt to reach an agreement with the employee by way of a without prejudice agreement, or sometimes with just a handshake. Needles to say neither of these approaches will prevent a disgruntled employee gong to the Tribunal.

The complexity of drafting compromise agreements has left many employers open to litigation. As an example, if part of the agreement involves liability against sex discrimination, the agreement must refer to the settlement of this claim. In Lunt v Merseyside TEC Ltd [1999] IRLR 458. Mrs Lunt had raised a number if potential claims (including sex discrimination). She accepted a compromise agreement that Merseyside TEC believed to be in full and final settlement, but a clause compromising the claim for sex discrimination was omitted. Having signed the agreement, Lunt then initiated a tribunal proceeding in relation to the alleged discrimination. Merseyside TEC claimed Mrs Lunt was barred from doing this, but the Employment Appeals Tribunal held that Mrs Lunt could proceed with her claim as sex discrimination had not been specified as a particular claim.

I hope these examples show the wisdom of an employer instructing a qualified and experienced employment specialist to draw up a compromise agreement. Copy and pasting something from the internet can seem a cheap alternative at the beginning but can prove to be a lot more expensive later on.

About The Author

Roger Dennerly is from Sedgwick Legal who are a solicitor’s practice in Middleton, Manchester. Roger has been a solicitor for over 20 years and specialises in Employment Law. As well as advising employers and employees about Compromise Agreements he is the leading light behind Sedgwick Legal’s Employment Support Package which helps employers deal with employment matters in the workplace. He has appeared in Employment Tribunals throughout the north of England as well as Scotland

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