Compromise Agreements
Employment law, dismissal and redundancy agreement
Compromise agreements, sometimes known as severance agreements or termination agreements, occur when an employee leaves a company, either through dismissal or redundancy. They can also serve as a means of settling a claim of discrimination or harassment against an employee. The employee signs an agreement promising that they will not make any claims (e.g. for unfair dismissal) against the company.
In doing this the employee waives their employment rights under the Employment Rights Act. A compromise agreement is the only way of doing this. An exception to this is when a COT3 settlement is arranged by ACAS.
Advantages of compromise agreements
This is attractive to employers as it means they do not have to worry about any repercussions such as employment tribunals, and is also desirable for employees as they will receive a handsome sum in compensation. Compromise agreements can be considered tantamount to the employer ‘paying off’ the employee to ensure no dispute will arise over dismissal, or to settle an issue which has already become apparent.
Another point in favour of compromise agreements is the ease and quickness with which they can be arranged, reducing the tumult for both sides and negating the need for court action. As compromise agreements benefit both sides, they are rarely met with resistance from either party.
The role of solicitors and other advisers
When a compromise agreement is drawn up, one condition is that an adviser must be involved. This adviser can be a solicitor or barrister, a certified trade union or advice centre representative, or a Fellow of the Institute of Legal Executives employed by a solicitors’ practice.
It is a requirement for the adviser to sign the contract (along with the employer and employee) declaring that, in their opinion, the employee has fully understood what it entails. The adviser may be needed to bring the employee towards this realm of understanding, and provides advice on the amount of compensation that should be expected. The compromise agreement cannot be enforced unless the employee has taken some form of legal advice.
Content of a compromise agreement
A compromise agreement usually contains:
- An amount of compensation offered to the employee
- Assurances given by both the employer and employee
- Indication that all terms have been accepted by the employee and that they will not take legal action in future
- A letter of reference which can be used by the employee in future job applications.
- A ‘non-compete’ clause which places some restriction on the type of jobs the employee is able to apply for in the future
- Payment of tax
- Confidentiality clause – i.e. that you cannot disclose some or all of the claims to anybody
The amount of compensation is purely down to the two parties and what they can agree to.
Rejecting the compromise agreement
The employee absolutely has the right to reject any offer of settlement, either on principle or because they feel the compensation offered is insufficient. In the case of inadequate financial renumeration, the employee can negotiate another settlement through a solicitor or go to an Employment Tribunal.