Compromise Agreements

There are dispute resolution techniques to try to get the relationship back on track, such as mediation, however sometimes the preferred solution is for the parties to go their separate ways. Compromise agreements are legally binding contracts which can be used to end the employment relationship on agreed terms.

The main feature of a compromise agreement is that they waive an employee’s right to make a claim to a court or tribunal on the matters that are specifically covered in the agreement. In return for this waiver, usually the employer agrees to make some form of payment to the employee and/or to provide other benefits such as an agreed reference.

If there is an existing dispute between the employer and employee the discussions that take place to reach a compromise agreement can be undertaken on a “without prejudice” basis. This means that any statements made during a “without prejudice” meeting or discussion can not generally be used in a court or tribunal as evidence. If there is no existing dispute between the parties the “without prejudice” basis does not apply and the employer, in particular, should exercise caution and seek legal advice, before commencing discussions.

For a compromise agreement to be legally valid the following conditions must be met:

-it must be in writing;

-it must relate to a particular complaint or proceedings (it has to specifically state the claims that it is intended to cover, “full and final settlement of all claims” will not be sufficient);

-the employee must have received advice from a relevant independent adviser on the terms and effect of the agreement and its effect on the employee’s ability to pursue that complaint before a tribunal;

-the independent advisor must have a contract of insurance covering the risk of a claim by the employee in respect of loss arising from that advice;

-it must identify the adviser;

-it must state that the applicable statutory conditions regulating the compromise agreement have been satisfied

Often, the independent adviser will be a solicitor. Whilst not a legal requirement it is common practice for the employer to make a contribution towards the employee’s legal fees.

As well as settling actual or potential claims a compromise agreement can cover other matters important to the parties such as:

-References;

-Protecting confidential information;

-Post termination restrictions or restrictive covenants;

-Return of company property;

-Periods of garden leave;

-Share options, pensions, bonuses & loans;

-Resignation as director of other company officer and;

-An agreed leaving announcement;

It is usual for the employer to instruct a solicitor to draft the compromise agreement and to negotiate final terms with the employee’s independent adviser.

Compromise agreements often include confidentiality provisions referred to as Non Disclosure Agreements (“NDAs”). The use of NDAs has been a matter of national debate since the Harvey Weinstein scandal and the #MeToo global movement which followed. A review of the use (and abuse) of NDA’s is ongoing. The UK government is consulting on new measures to prevent the misuse of NDA’s with the consultation to end on 29 April 2019.

NDA’s can be beneficial to both parties provided they are not misused. It is usual for an NDA to exclude disclosure made under the Public Interest Disclosure legislation (“whistleblowing”), when seeking legal advice or other disclosures required by law. An NDA should not be used to hinder an employee from reporting a crime to the police or disclosing information in any criminal proceedings. Compromise Agreements can be an effective tool to bring the employment relationship to a relatively amicable end.

Julie Anne Clarke Partner Employment Law