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Employment Law

Compromise or Settlement Agreements

Compromise or settlement agreements are legally binding contracts following the termination of a contract of employment. The terms essentially stipulate that an employee will waiver or refrain from exercising any potential rights that they may have under Employment law against their employer in return for a compensatory payment. This usually involves signing an all en-compassing waiver for all potential future claims. Compromise agreements are the only way in which an employee can legitimately ‘contract out’ of their statutory employment rights. The law though operates to protect employees from simply signing these away when they might not fully understand them. This is why for a compromise agreement to be validly constituted (and thus enforceable) the employee must have taken independent legal advice.  Like all contracts these are binding once they have been executed in the proper form.

Compromise agreements were introduced to reduce the number of claims made to Employment Tribunals and are used by employers to minimise potential actions against them.

Compromise or settlement agreements are widely utilised in business. Though they provide a high level of protection against most future claims, compromise agreements cannot be used to waiver certain rights such as the right to be consulted in a redundancy situation.

Compromise or settlement agreements can be used is where an employee has a potential claim for unfair dismissal. Statistics from a recent survey by The Chartered Institute of Personnel and Development show that compromise agreements are often used not only as a form of settling an existing dispute but for other reasons. These include removing a poorly performing or misbehaving employee (38.95%) or to avoid future claims in redundancy (25.74%) and even to make it easier for senior employees to be removed without embarrassment (24.3%).  Therefore even though employers have followed the correct procedure in relation to their employees they may still want to have for their own peace of mind a compromise agreement to ensure that there is no possibility of future liability.

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