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COMPROMISE AGREEMENTS
We spend most of our waking day at work. For employers it should
be a place where staff work well and produce results. A committed
motivated team is an important asset and individuals who, for
whatever reason, are seen as undermining that asset are invariably
seen by the employer as a threat that can be done without. Yet
contrary to the perceptions of some employers the expectations
of employees for the workplace are usually no different. Most
staff want to feel committed and motivated in their work, and
place a personal value on the results which they produce.
Breakdown
However from time to time things breakdown. Often it is not
the obvious fault of either the employer or the employee, it
is just a natural consequence of people spending so much of their
time in the same company as each other. When a serious dispute
does arise at work it inevitably results in the employer and
employee parting company acrimoniously and potentially the dispute
ends in the Employment Tribunal. Either the employer will dismiss
the employee, or the employee will claim that the treatment they
have received has fundamentally broken down the employment relationship.
As a consequence the employee may resign and claim that they
have been “constructively dismissed”. Given that
the compensation limit for unfair dismissal is now well in excess
of £50,000, it is the employer who usually has the risk
and stands to lose the most by allowing the matter to escalate
this far.
If a matter does proceed to a Tribunal the employer will not
only have to show that they have dismissed for a permitted reason – usually
one of misconduct, performance, or redundancy – but also
that they followed a fair procedure in line with the minimum
statutory requirements. If the dismissal is for misconduct, then
the employer will need to have followed a disciplinary procedure
involving various levels of warning save in cases of gross misconduct.
If the dismissal is for poor performance then the employer will
be expected to demonstrate that they have indicated what the
problem is and that they have tried to resolve the problem by
allowing the employee sufficient opportunity to improve. If the
dismissal is for redundancy then the employer will need to identify
the fair basis upon which the employee has been selected for
redundancy and that appropriate consultation had taken place.
All these procedures take time – in some cases months – and
expense. However it is invariably the case that employers want
the matter resolved immediately. Yet very often employees feel
the same way but understandably are not prepared just to leave.
Following the required procedures in these circumstances is usually
not only unhelpful but can often exacerbate the situation.
Compromise
There is a solution. Employers and employees who would prefer
to resolve a matter without proceeding to a Tribunal but recognise
that the employment relationship has come or is coming to an
end can enter into a Compromise Agreement. This usually saves
time and costs for both parties. The employer is not required
to follow the relevant procedures and, even where those procedures
have been followed, is not still faced with the prospect of
a Tribunal claim. The employee receives an agreed sum of money
under the agreement, which can often be paid tax free, in return
for agreeing not to bring a claim. The employee may also be
able to agree the wording for a reference, and does not face
the prospect of waiting months for a Tribunal hearing or paying
solicitors at a time when they may be out of work and can ill
afford to.
Legalities
Of course it’s not that simple. Presenting an employee
with a Compromise Agreement may in itself constitute a Constructive
Dismissal so derisory settlement offers contained in Compromise
Agreements may well do an employer more harm than good if the
employee rejects the offer and proceeds to an Employment Tribunal.
The parties must agree on the terms of settlement which may involve
some negotiation on both sides. To be valid there are certain
specific legalities relating to the format of the agreement.
Accordingly most employers will have the agreement drawn up by
an employment lawyer. The agreement must be in writing, and must
specify the particular complaint which the employee is agreeing
to compromise. The employee must have received independent advice
from a person qualified and insured to give that advice (invariably
their own appointed solicitor) as to the terms and effect of
the proposed agreement. The agreement must identify who the adviser
is and it is usual for the employer to pay some or all of the
costs involved in taking this advice. Finally the agreement must
state that the conditions regulating compromise agreements are
satisfied.
Conclusion
Legalities aside, Compromise Agreements are an effective way
of resolving a variety of employment disputes and provide an
effective and viable method of avoiding legal proceedings and
the consequential time costs and monetary expense for both parties.
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