Neil Dwyer, Head of employment at Hay & Kilner Solicitors, offers advice on the best use of compromise agreements
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:
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.
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:
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.
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:
Sometimes there may be good reason why an employer is happy to simply dismiss and defend itself in any Employment Tribunal. The usual position is where there is a strong case of gross misconduct and it is not thought a claim will result. However, in many other cases, disputes arise and it makes sense for employers to take a pragmatic and conciliatory view with regard to making a compensation payment that will buy off claims as early as possible, creating certainty and a clean break. To achieve those aims, it is essential that a Compromise Agreement is used and that it is well thought out and completed correctly.
This article is not legal advice; it is intended to provide information of general interest about current legal issues. Please contact us to discuss how the contents of the article may affect you.