Compromise Agreement: What it is?

An employer employee relation is vital, both for an organisation’s profit and for a healthy career of an employee. Hence it is important to have the necessary safe guards in place to avoid any undesired situations in future, harming the company’s image and causing unnecessary harassment to the employee. A compromise/settlement agreement takes care of these issues.

Up until very recently, compromise agreements could only be presented to an employee if there was an on-going dispute between the company and individual. If an employer approached an employee with an agreement of this kind without any previous on-going dispute, the employer could be opening themselves up to potential claims against them.

However, the government have recently announced a change in the law, where by compromise agreements will now be called settlement agreements and the employer is able to approach an employee regardless as to the whether or not there is an on-going dispute. The employee does not have to accept the agreement, but it means that the employer will not risk any claims against them if they wish to part company with a particular employee.

The employee signs the agreement with the employer stating that he or she would have no claims whatsoever against the company, in case the company breaches any statutory obligation. The employee receives an assured sum in return for signing away his right to make a claim. His agreement is the only way by which an employee can waive his claims like unfair termination of employment or prejudice.

This kind of agreement is legally binding when:

  • It is in writing;
  • An independent solicitor oversees the agreement.

Since every work environment is different, the agreement and its terms and conditions should be framed keeping in mind the individual requirements with the help of a solicitor. Usually, the employer will pay all reasonable costs for a solicitor to carry this out on behalf of the employee.

The Employment Rights Act 1996 (Sec 203) states that a UK employer can ask his employees to sign away their legal rights only if a compromise/settlement agreement is signed, otherwise the employer cannot do so.