Compromise Agreement
Advice for employers in East London regarding compromise agreements
Why would an employer enter into a compromise agreement ?
Employment law is a legal minefield and employers face a double whammy in the sense that, even where the employer has acted reasonably, in compliance with it’s own contracts, policies and procedures, the employee can still bring a claim in the employment tribunal which will invariably cost an employer thousands in legal costs and wasted time. Taking this into account, employers commonly make a judgment and decide that certainty and finality are worth having even if this results in paying the employee more than he or she is contractually entitled to.
In essence, a Compromise Agreement is a form of contract to terminate a contract, in this case the employment contract. Compromise agreements are the only way in which an employer can gain an almost full degree of certainty and finality and in return, the employer will typically pay an ex gratia amount of perhaps between the equivalent of 1-3 months salary gross as the financial inducement for the employee to sign the agreement.
Are there any other advantages ?
Compromise Agreements often incorporate clauses whereby :-
- all matters concerning the events leading to the termination of employment and sum offered will remain confidential.
- the employee will be required to commit to non-compete and non-solicitation clauses for a set period in the future
Independent advice for the employee ?
Bearing in mind compromise agreements are fairly standardised employers often ask why they should pay even more money so that the employee receives independent legal advice. The answer to this is simply that the agreement will not be legally valid unless the employee has received independent advice. This is a requirement of the relevant legislation which makes comporomise agreermenst legally binding.
Be careful in “without prejudice” negotiations
Employer should be very careful about negotiations about compromise agreements, always bearing in mind that an employee is free to reject a Compromise Agreement. It is very important to ensure that any negotiations are expressly on the basis of being “without prejudice”. This means that the discussions cannot be disclosed or referred to in any Tribunal proceedings.
Is the employee entitled to a reference ?
References commonly are requested by employees as part of compromise agreement negotiations. In legal terms an employer has no duty in law to provide a reference. If employers do provide a reference care should be taken as to the wording used. there is generally nothing wrong in stating the employee’s record whilst in your employment but do not recommend the employee for any future position.