Settlement and Compromise Agreements

Sometimes employers offer employees settlement agreements (formerly known as compromise agreements) to bring their contract of employment to an end, often as a more favourable alternative to redundancy procedure or a disciplinary procedure resulting in dismissal for poor conduct or lack of capability. The certainty and privacy of a settlement agreement often suits both parties.

The advantage of a settlement agreement for the employer is that it can insulate them from any claims from the employee except for latent personal injury claims and accrued pension rights. This is particularly important because generally, employers cannot recover their legal costs incurred through a tribunal claim, even if the claim fails. It is important for employers to realise that the settlement agreement will not protect them unless the employee gets the advice of an independent legal adviser before signing the agreements. Doing it yourself and missing this step is a complete waste of money as you will have paid the employee off with an unenforceable agreement and they can still bring a claim – even if they signed an agreement. Unless the employee has had independent legal advice and a signed certificate from that adviser the employee’s signature on an agreement with the employer has no effect.