Why should I offer a Compromise Agreement?

The Check List - Offering a Compromise Agreement?

"It's the money not the principle" 

The main reason for offering a compromise agreement is that it will prevent the employee from making a claim in the employment tribunal.

Compromise agreements can be used to compromise claims that can be made under the Sex Discrimination Act, the Race Relations Act, the Disability Discrimination Act, the Age Discrimination Act, the Trade Union and Labour Relations Consolidation Act and the Employment Rights Act (which includes the Wages Act).

A compromise agreement also allows an employer to revisit post compromise restrictive covenants.  An employer may regard a departing employee as a potential threat if there are no restrictive covenants or weak restrictive covenants in the employee's contract of employment.  This often arises when a junior employee has risen to a senior executive and still has the original employment contract of a junior employee.

A compromise agreement sets down the post employment rights and obligations of both parties, so that it gives clarity and certainty of your future relationship with an ex employee.   Even if you are making a redundancy, you need to ensure you have followed the correct procedure and the compromise agreement properly sets out the terms of the deal.

The decision whether or not to settle and at what level can be a complex one, as illustrated by the check list below.

The Check List

- To decide whether to offer a compromise agreement and what the terms should be:-

  • Is the employee willing and able to enter into the compromise agreement?  If so, can an agreement be reached to avoid the time and expense of defending an employment claim? 
  • What would be the likely award at the employment tribunal?
  • What would be the chances of success at the employment tribunal and what is the likely evidence?
  • What would be the cost of defending an employment claim?
  • What would be the likely financial package that the employee would find acceptable?
  • Might fighting the case damage employee relations or settling the case set a precedent for any future disputes, as employees may expect the same treatment?
  • Are there any terms that you think would be beneficial to protect your business interests?
  • What are the Inland Revenue rules for making a tax free payment?
  • Consider how and when you should make the offer? If you get the timing wrong you could create a claim for constructive dismissal.
  • You should discuss the matter with an independent legal adviser at the earliest opportunity.

So, contact at the earliest opportunity either Andre or Ruth of Stone Joseph solicitors (0207 8549098), a specialist boutique employment practice to advise on what are the most relevant issues for you.

"Far from bitter"