Dec 24, 2012

The use of Compromise Agreements

As a general rule...

As a general rule, ‘out-of-court settlements’ of employment disputes are not legally binding in that they cannot exclude an employee’s right to take the matter concerned to an Employment Tribunal (ET). A formal compromise agreement is one of the few exceptions to this rule.

In recent years it has become more and more difficult to use compromise agreements in order to part company with problem employees, with the need to stipulate a dispute and the need to set out a detailed list of the causes of action to be compromised. 

There are proposed changes making their way through parliament.  One aspect of the change is that compromise agreements will be renamed, settlement agreements.  Also outlined in a consultation that closed on 23rd November, employers will be able to offer employees a settlement agreement to terminate their employment, irrespective of a dispute between them.  If the employee refuses, they will not normally be able to use the fact that the employer offered the settlement at any subsequent employment tribunal hearing.  Any settlement will not be grounds for constructive dismissal. 

The government plans to produce template letters for employers, to be available on a government website, to send to staff whose services are no longer required. 

As part of the ‘agreement’, an employee will typically receive a severance payment, and perhaps a reference, in return for waiving their right to take a case to an employment tribunal on any grounds covered by the deal.

The purpose of the settlement agreement is to make it easier and quicker for employers and employees to come to an agreed settlement where an employment relationship has broken down.

The exclusion of these discussions being admissible in evidence before an Employment Tribunal will only apply to claims for standard unfair dismissal.  If a claim is one for automatic unfair dismissal, unlawful discrimination or breach of contract, the claimant will be able to present evidence about any termination discussion and/or settlement offered.

Mike Emmott, employee relations adviser at the CIPD, said: “There is a real danger that a measure intended to make things easier for employers could cause unnecessary arguments about what does and does not constitute a fair and legal approach to broaching the topic of poor performance. ??“There are existing, well-used routes to managing poor performance, and effort would be better spent ensuring more employers understand and are able to make use of them.”??Emmott said that “the reality is many employers already use compromise agreements as a foundation for terminating employment. Employers that need more confidence to do it will not be more empowered by settlement agreements”, he added.??He also urged the government to protect and promote good practice by requiring employers to use proper performance management practices before offering any settlement agreement.

For now though, employment disputes can be settled by the use of compromise agreement and If you have reached this unfortunate stage and you feel there is no way back, BBi Risk Solutions can help!