Compromise Agreements
Employers and employees may resolve their employment disputes by signing a document known as a compromise agreement (also sometimes referred to as a severance agreement or termination agreement). In addition, an employee may be asked to sign a compromise agreement if they are receiving an ex-gratia payment such as an enhanced redundancy payment.
The offer from the employer to the employee will usually be stated to be ‘without prejudice’ so as to prevent the terms of the offer being used as evidence in later proceedings in the event that the employee chooses not to accept the agreement. By negotiating compromise agreements on this basis, it ensures that the agreement is not binding until it has been signed.
Requirements
In terms of the Employment Rights Act 1996 employees are not permitted to contract out of their statutory employment rights except in cases where the following conditions have been met:-
1. The Agreement must be in writing.
2. The Agreement must relate to the particular complaint.
3. The employee must have received independent legal advice from an independent legal adviser as to the terms and effect of the proposed Agreement.
4. The adviser must be identified in the Agreement.
5. The Agreement must state that all of the above conditions have been satisfied.
Once these conditions have been met and the agreement is signed by the parties, it will have the effect of discharging the employee’s statutory rights referred to in the agreement. Proceedings which may be compromised include unfair dismissal proceedings, discrimination claims, claims for breach of contract, unlawful deduction of wages and equal pay claims. The employee in return for signing away their rights will receive monetary compensation usually within a specified period, for example, seven or fourteen days.
It is common for compromise agreements to exclude a waiver of personal injury and/or accrued pension rights claims which enable the employee to be able to make such a claim despite signing the agreement.
Common terms which compromise agreements will contain: -
• Payment of a lump sum
• Contribution towards legal fees
• Provision of an agreed reference
• Provision of outplacement counselling
• Confidentiality
• Return of company property
• Treatment of outstanding company expenses
• Restrictive covenants
Conclusion
A Compromise Agreement is a useful tool for an employer looking to reach a settlement with an employee where there is concern that he or she could bring a claim. Once the employee has signed the agreement, that employee cannot then pursue his or her employer through a court or Tribunal for matters arising out of their employment. However, it is important that employers take legal advice prior to issuing a compromise agreement to ensure that it is suitably tailored to the actual circumstances and identifies all the potential claims the particular circumstances could give rise to. Similarly, employees should take advice if asked to sign a compromise agreement. Our experienced employment solicitors will be happy to advise on the terms of your compromise agreement.
For more information please contact our experienced employment law solicitors in Edinburgh, Glasgow and London.
See also Compromise Agreement - Frequently Asked Questions.
Contact Us
You can contact the employment law team in Edinburgh, Glasgow or London. For an initial informal discussion contact Innes Clark:
T: 0131 247 1181
E: innes.clark@morton-fraser.com
The contents of this article are for information only and are not intended to be construed as legal advice and should not be treated as a substitute for specific advice. Morton Fraser accepts no responsibility for the content of any third party website to which this article refers.
