Compromise Agreements
The number of claims made to the Employment Tribunal has grown enormously over the past decade. In the last recorded year, 132,492 claims were made by employees including 43,510 unfair dismissal claims, 47,776 breach of contract/unpaid wages claims and 17,842 discrimination claims. This is great news for employment lawyers but causes serious difficulties for small and medium sized businesses. To make matters worse, the maximum compensation for loss of earnings in a claim for unfair dismissal has arisen from £11,300 in 1997 to £63,000 today.
In response to the increasing risks of employment law litigation, there has been a very substantial growth in compromise agreements. A compromise agreement is a particular form of legal settlement under which an employee (or ex-employee) gives up the right to bring any legal claims against their employer on the basis of some kind of financial payoff. Many companies in Swindon will insist that their employees sign binding compromise agreements as a condition of receiving enhanced redundancy pay. It is also common for employers to approach employees who are causing difficulty (for example on grounds of performance, health or conduct) and offer a financial payoff subject to a compromise agreement.
It is essential that employers reach a settlement on the basis of a compromise agreement rather than on the basis of any other kind of written settlement. The legal position is that an employee can accept any sum of money through an ordinary settlement and (the next day) completely ignore the settlement and immediately bring a claim for unfair dismissal. In essence, the Employment Rights Act says that you cannot sign away your right to claim unfair dismissal (or bring other sorts of statutory claims) except through a binding compromise agreement.
There are various conditions that need to be met in order for a compromise agreement to be valid and it is essential for businesses to seek legal advice in each individual case. However, the most important condition is that the employee receives independent legal advice before entering into the agreement. The risk, of course, is that the employee will approach an independent lawyer and then take a different view as to the fairness of the settlement agreement. This means that the employer can sometimes become embroiled in negotiations over the nature of the financial package and the wording of any agreement.
Notwithstanding the complexities of compromise agreements and the occasional difficulties over negotiating terms, these agreements have become extremely popular and still represent the best way of resolving employment issues without the need for expensive and time consuming litigation at the Employment Tribunal.
October 2008
This article gives a general overview only and the legal position at the time of writing this article. It cannot be relied upon in any particular case. Specific legal advice must always be considered to include consideration as to whether the legal position contained in this article has changed since going to print. For further information and advice, please contact Paul Archer or Lauren Harkin on 01793 527141 or alternatively by email on Paul.Archer@lemon-co.co.uk or Lauren.Harkin@lemon-co.co.uk.
If you would like to receive more information from Lemon&Co and be kept up to date with legal and statutory updates please register here.
Link to this article:
If you wish to link to this article, please paste the follwoing code into your web page:
<p><strong><a href="http://www.lemon-co.co.uk/article_compromise-agreements.php">Compromise Agreements</a></strong><br />
The number of claims made to the Employment Tribunal has grown enormously over the past decade...</p>
Download our core services brochure
- click here - PDF format (275kb)