Compromise agreements

Employers can dismiss employees under one of six potentially fair reasons for dismissal: conduct, capability, redundancy, breach of a statutory enactment, some other substantial reason and retirement.

However carefully these dismissals are carried out by the employer, there is always a possibility that an unfair dismissal claim will be brought either because the dismissal is not for a fair reason or because it was not procedurally fair.

To circumvent this, the parties can enter into a compromise agreement which effectively waives an employee's right to take their case to an employment tribunal in exchange for a sum of money being paid to the employee. Compromise agreements can also relate to a number of claims.

In practice compromise agreements are more frequently used in the case of relatively senior employees.

For a compromise agreement to be valid certain conditions must be met:

• It must be in writing
• It must relate to a particular complaint or complaints
• Legal advice must have been given to the employee by an independent legal adviser
• The adviser must be insured
• The agreement must identify the adviser
• The agreement must state that the conditions regulating compromise agreements have been satisfied.

Where a number of claims have been raised by an employee, they can all be settled in a single compromise agreement.

It is common practice for compromise agreements to include warranties from the employee, for example the return of employer property and confidential information, as well as a warranty that the employee has not been offered another job. It is also common practice for the compromise agreement to include an agreed reference.

Negotiations leading up to the making of a compromise agreement
should be made "without prejudice" so that the employee cannot refer to
the attempted settlement at tribunal.

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Published:

29 February 2012