Neil Dwyer, Head of employment at Hay & Kilner Solicitors, offers advice on the best use of compromise agreements

Key Objectives: certainty and completeness

If an employer has decided to make a payment to settle an employment claim, these key objectives are essential to achieve maximum benefit which includes:

• Drawing a legal line under the dispute so no “second bite of the cherry” claims can be made.
• Not missing opportunities to deal with wider issues beyond the dispute.
• Presenting a positive public picture of the resolution.

Legal Compromise

Although any agreement may compromise a claim (an exchange of letters indicated to be in full and final settlement) only a Compromise Agreement will satisfy the statutory requirements that are necessary to effectively waive certain employment rights. The statutory requirements provide necessary wording to be included in a valid Compromise Agreement. If it is not valid, and ACAS have not been involved in the settlement, then an ex employee may have a “second bite of the cherry” by bringing a further claim and it is possible that there will be other loose strings, dealing with property returns, tax and business protection provisions.

For the Compromise Agreement to be valid essentially:

The claims must be identified in writing and advice provided by a relevant independent adviser (with the employer usually paying a contribution towards his/her legal costs) as to the terms and effect of the agreement and in particular on its effect on the employee’s ability to pursue the claims before an Employment Tribunal or Court; and

The adviser must sign a certificate to this effect.

KEY POINT: do not spoil the ship for a ha’porth of tar.

No two cases are the same. Each should have a formal and well drafted Compromise Agreement entered into correctly. Employers should never use some version that has been passed down to them or borrowed from a friend. They may either invalidate the settlement or create ambiguity where certainty was sought.

There are technical pitfalls running through the use of Compromise Agreements such as:

• Using wording to ensure that all intended claims are settled, with no loose strings. This involves consideration of whether the claims derive from statute or the contract, whether they are presently the subject of proceedings or not.

• The identity and qualification of the adviser not conforming.

Back- up provisions if a “second bite of the cherry” claim is made.

Clear thinking and drafting can provide back-up in circumstances where there is doubt as to the validity of the Compromise Agreement and the employee later brings Tribunal proceedings or a second set of proceedings. In those circumstances, the Compromise Agreement can provide that the employee has to repay any compensation monies paid and this usually serves to deter a sensible employee.

Other benefits beyond legal certainty

In addition to settling legal claims effectively, the Compromise Agreement can also include provisions that deal with some typical wider issues so that completeness of settlement is achieved:

• With an eye to Revenue returns, a provision can breakdown what payments are being made, dealing with payments in lieu of notice, redundancy payments (if relevant) and compensation payments, with an indication as to the agreement that has been reached between the parties concerning the appropriate tax treatment for each.