When businesses should use compromise agreements

by Direct2Lawyers on October 4, 2012

  • SumoMe

Compromise agreements have received quite a lot of news coverage lately, with the Government consulting on, among other things, whether their name should be changed to “settlement agreement”. A minor change, yet apparently significant. Anyway, aside from the changing name of the agreements, compromise agreements are a useful means of terminating the employment relationship and limiting an employer’s liability to their former employee’s claims. This post will examine why compromise agreements are useful, when they may (and possibly should) be used, and the employer’s obligations relating to compromise agreements.

  1. Why are compromise agreements useful?
  2. When can (and potentially should) compromise agreements be used?
  3. What are an employer’s obligations relating to compromise agreements?

Why are compromise agreements useful?

Compromise agreements are useful to both parties (employer and employee) for the following reasons:

For the employer

  • They offer certainty regarding the avoidance of future litigation and the cost of ending
  • They limit the employer’s future risk exposure
  • They avoid potentially expensive legal fees for dealing with an Employment Tribunal complaint

For the employee

  • Again, they offer certainty to the employee regarding compensation and their future career
  • They provide a “clean break” for the employee, avoiding the stress of Employment Tribunal proceedings
  • They avoid potentially expensive legal fees (although it is perfectly possible to find a no win no fee employment lawyer willing to take the case on)
  • They usually involve the provision of a reference (which means getting a job in the future is easier)

When can (and potentially should) compromise agreements be used?

Compromise agreements can potentially be used in any situation where an employee (or worker’s) employment is being terminated (or is being proposed to be terminated) and that employee or worker qualifies for rights which they could assert against their employer. Such rights include the right to make a claim for unfair dismissal, discrimination, harassment, victimisation, breach of contract etc.

Employers will wish to use compromise agreements if they think an employee may have a claim for unfair dismissal, discrimination, or a claim of any other description. It is common for compromise agreements to be used in situations where employees are on a long leave of sickness-related absence or if there are redundancies being made at the workplace (so that the employer can reduce the burden of complying with a fair redundancy procedure, for example). Compromise agreements are not a short-cut to treating your staff badly and limiting your liability, though – a certain degree of man management is required, as always.

Employees will want to use compromise agreement if they want to terminate their employment but not engage in potentially lengthy and stressful Employment Tribunal or civil court litigation to achieve a remedy for the harm they’ve suffered. However, again, employees should be wary when entering into a compromise agreement and should obtain the best compromise agreement advice available. They should, in a best case scenario, be aware of the pitfalls of compromise agreements and be aware of questions to ask a compromise agreement solicitor when instructing them.

What are an employer’s obligations relating to compromise agreements?

Employers must inform the affected employee that they must seek independent legal advice from a qualified representative (such as a solicitor or barrister). It is normal (but not essential) for the employer to pay a sum towards the obtaining of such advice (between £250 and £600, normally).

Direct 2 Lawyers offer free employment law advice for employees and free employment law advice for employers. The specialist employment lawyers they use offer employment law advice and are unfair dismissal solicitors.

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