A Compromising Situation
Here is a brief look at the law as it stands, and the opportunities and pitfalls a Compromise Agreement can present.
So what is a Compromise Agreement?
It is a legally-binding agreement between an employer and employee which usually provides for, or follows, the termination of employment. In most cases the employer agrees to make a payment in exchange for the employee’s agreement to waive their rights to bring an Employment Tribunal claim. The agreement must comply, however, with precise legal requirements regarding its formation. There are also some claims which cannot be waived by a Compromise Agreement.
What are the current statutory requirements for a valid Compromise Agreement?
The main requirements are:
1. The agreement must be in writing
2. It must relate to a “particular complaint” or “particular proceedings”.
3. The employee must have received legal advice from a relevant independent adviser
What is meant by “particular complaint” or “particular proceedings”?
It means that a “catch-all” waiver, often used in standard termination agreements, will not be enforceable. The agreement must specify the individual claims which it is intended to settle, eg, unfair dismissal, disability discrimination.
Who qualifies as an “independent legal adviser”?
1. Qualified lawyer
2. Officer, employee or member of an independent trade union who has been certified by the union as competent to give advice and as authorised to do so on its behalf
3. Representative at an advice centre (employee or volunteer) who has been certified as competent to give advice and as authorised to do so on its behalf, provided the employee has not paid for the advice.
4. Fellow of the Institute of Legal Executives employed by a solicitor’s practice.
What are the pros and cons of using a Compromise Agreement?
The potential benefits are:
· They offer a “clean break” for both employer and employee
· They offer a degree of certainty to the employer in relation to potential litigation
· They can be drafted and agreed relatively quickly
But there are potential pitfalls.....
· If badly drafted they may not protect the employer against future litigation
· If used inappropriately, their suggestion at the employer’s behest can leave the employer exposed to claims of constructive unfair dismissal and unlawful discrimination.
· The requirement that the employee takes legal advice can open up the possibility of claims which the employee might not otherwise have considered, ie the “can of worms” scenario.
It remains to be seen what will come from the government’s consultation in this area. Until then, employers would be wise to consult their legal or HR advisers before considering the use of a Compromise Agreement.