Compromise Agreements

What are compromise agreements?

Sometimes employers want to part company with an employee. This can be in contentious or amicable circumstances and compromise agreements allow for employment to be ended on agreed terms.

When should a compromise agreement be considered?

A compromise agreement can be offered to an employee before or after employment has been terminated. In either situation the offer should be "Without Prejudice", so the terms may not be used as evidence in later proceedings, should the agreement not be accepted.

These agreements stop employees bringing claims against employers in any court or tribunal.

The Employment Rights Act 1996 and other legislation provide that statutory claims, such as unfair dismissal, can only be settled in one of three ways. One of these ways is through a compromise agreement. The other ways are:

• An agreed order of the tribunal; and
• An agreement in the form COT3, which has been agreed through ACAS, after the commencement of tribunal proceedings.

Any other form of agreement will not prevent an employee from bringing an employment tribunal claim

Form of the compromise agreement

To be valid:

• The agreement must be in writing and specify the claims being settled
• The employee should have received independent legal advice from a qualified adviser who holds an appropriate policy of insurance.
• The agreement should identify the advisor and state the conditions regulating compromise agreements are satisfied.

Advantages

• Offers an employer the certainty of protection from claims
• Employee has the certainty of a settlement sum
• Avoids costs of tribunal proceedings

If, as an employee, you are offered a compromise agreement, you will need to take legal advice on whether you should accept the terms. Although it is not a requirement of the legislation, it is customary for an employer to agree to pay the legal costs incurred by the employee, but usually only if the employee enters into the agreement and also usually limited to a specific sum.

For more information please contact lead Partner, Carol Shaw

Carol Shaw
Partner

John Spratt
Partner

Hitendra Patel
Partner

Billy Ashley
Solicitor