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, even when the employer ensures they take reasonable care to avoid an unfair dismissal claim, sometimes the dismissal can still give rise to problems for the employer, either because the dismissal is not for a fair reason, or because it was not procedurally fair.

A Compromise Agreement is a written settlement between employer and employee whereby the employer agrees to make a financial payment to the employee and the employee, in return, agrees not to bring any court proceedings against the employer.

In order for the Compromise Agreement to be valid the employee must take independent advice on the terms and implications of the Compromise Agreement. Usually the employer will contribute a sum towards the employee’s legal costs for securing the independent advice.

Compromise Agreements contain terms relating to the payment to be made by the employer, terms dealing with the tax treatment of the payment, terms preventing either party making false or damaging statements about the other, and often set out the form of reference the employer is to provide when requested.

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 by an independent legal adviser
•  The adviser must be insured
•  The agreement must identify the adviser
•  The conditions regulating Compromise Agreements must have been satisfied.

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

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.