Compromise Agreements – Is your Compromise Agreement Valid?
As many businesses will be aware, a compromise agreement is simply a special form of legal settlement that arises in an employment law context. The general rule is that ordinary settlement agreements are invalid and employees can only give up statutory claims like unfair dismissal and discrimination if there is a valid compromise agreement.
There are various conditions that must be met for compromise agreements to be valid. The most important conditions are that the agreement is in writing; that it relates to particular legal claims; that the employee receives advice from an independent solicitor; and that the agreement confirms that the employee has received this independent legal advice.
In practice, compromise agreements often arise where there is a payment of enhanced redundancy pay or where relations between the employer and employee break down and there is no alternative but to negotiate an exit.
The conventional wisdom has been that compromise agreements represent a clean break and that there is no kind of legal redress that can be sought by an employee once the compromise agreement has been signed and concluded. However, in the recent case of Industrious Ltd v Horizon Recruitment Ltd and another, the Employment Appeal Tribunal held that a compromise agreement might be invalid if it is based upon a misrepresentation.
For example, if the employer were to deliberately mislead an employee into accepting a compromise agreement on the basis of factual assertions that they knew to be untrue then the compromise agreement may be invalid and the employee may be able to proceed with claims for unfair dismissal. This would be an unusual case but it does now seem that the Employment Tribunal will sometimes have to consider that there has been a misrepresentation before deciding whether there is a valid compromise agreement.
For further information on compromise agreements generally, please follow the link compromise agreement.
February 2010
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.
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