UK Law: What is a Compromise Agreement?
UK Law: What is a Compromise Agreement?
UK Law: What is a Compromise Agreement?
A 'Compromise Agreement' is an agreement prescribed by statute to bring to an end statutory claims (ie unfair dismissal or discrimination) arising out of the employee's employment or termination of employment. A simple agreement in writing signed by the employer will not prevent the ex employee from bringing a claim. In practice, compromise agreements tend to list out any conceivable claim that could possibly be imagined.
A compromise agreement might be offered when the employee is being made redundant, or when the employee is engaged in some form of a dispute with the employer to bring his or her employment to an end.
Basically the employee has to go off and get independent legal advice before signing away his/her legal rights. The solicitor should advise the employee on any potential claims arising so that the employee fully understands the legal issues, and the value of any potential claims, before signing away their rights. The solicitor who provides the advice must have a form of indemnity insurance in place, so that if the employee subsequently decides that s/he was poorly advised, s/he can sue the solicitor for negligence instead.
The solicitor will generally:
1. Advise the employee on whether any claims arise on the termination of employment
2. If so, advise the employee what those claims might be worth
3. In the light of that information, advise the employee whether the sum offered is reasonable in the circumstances
4. Explain the meaning and effect of the agreement to the employee and advise whether anything needs to be amended or changed.
Employers generally contribute to the employee's costs of getting independent legal advice. The going rate is generally 250 + VAT, at least in the South of England, whilst for workers in the City the contribution is often in the region of 500 + VAT.
Employers would generally be well advised to enter into compromise agreements with the employees that they are dismissing if they are offering any sort of enhanced payments. Unless they do so, there is a potential risk that the employee may accept the money paid to them, but still pursue a claim in the Employment Tribunal or elsewhere.
In order for a compromise agreement to be binding, the following conditions must be satisfied:
The agreement must be in writing
It must relate to a particular complaint
The employee must have received advice from a relevant independent adviser (normally a solicitor) as to the terms and effect of the proposed agreement and in particular its effect on his ability to pursue his rights before an employment tribunal.
There must be in force, when the employer gives the advice, a contract of insurance or an indemnity covering the risk of a claim by the employee in respect of loss arising from the advice.
The agreement must identify the adviser
The agreement must state the conditions regulating compromise agreements under the relevant Act are satisfied.
If you are an employer and currently use a standard Compromise Agreement precedent, you may have to update it in the light of Hinton v University of East London [2005]. The Court of Appeal held that potential claims must be identified either by description such as unfair dismissal' or by reference to the section of the statute giving rise to the claim. In other words, if your Compromise Agreement precedent doesn't include a long list of all imaginable statutory claims, you may be in trouble.
In the Hinton case, the University forgot to list s47B whistle-blower' claims in those settled, and a general catch-all settlement provision was not effective. Hinton was therefore free to crack on with his whistle-blowing claim, no doubt much to the University's annoyance. Employers would be wise to review their compromise agreements regularly. It's important to get a compromise agreement drawn up by a solicitor and not just use a precedent off the internet which may be out of date.
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