For those in the public sector where enhanced redundancy packages are either a historical legacy or have been agreed in exchange for lower pay, the term “compromise agreement” will soon become well known to those who opt for voluntary severance.
Please also see our updated article about settlement agreements (which have replaced compromise agreements).
A compromise agreement is a contract under which an employee is asked to give up his or her right to bring employment claims against his or her employer in exchange for a sum of money.
Contractual claims, for example wrongful dismissal or breach of contract, can be settled under any type of agreement provided the employee receives something (known as "consideration") in exchange for giving up his or her claim(s). However, in order to prevent unscrupulous employers pressurising workers into signing away their statutory rights, such as unfair dismissal, pay claims and the rules prohibiting unlawful discrimination, the agreement will be void if it is not agreed and recorded correctly.
A compromise agreement will only be legally binding if the employee has had independent legal advice as to its terms and effects. That advice can be taken from a qualified lawyer, a trade union official or a certified adviser (who must be covered by a current contract of insurance or professional indemnity). It is common for employers to contribute towards the cost of the legal advice.
The aim of the compromise agreement is for the employee to have given up, forever, the claims specified in that agreement. To give added protection to the employer, it is common for compromise agreements to include a warranty (a legally binding promise that something is accurate) that the employee does not have any other claims than those specifically mentioned. If the employee knows of a potential claim that hasn’t been listed but signs the agreement without raising it, then the employer may be in a position to refuse to pay the settlement money or to get the money back because the employee would be in breach of warranty.
Updated information about settlement agreements (which have replaced compromise agreements) can be found here: Settlement Agreements
However, there are some issues which cannot be waived under a compromise agreement: for example, accrued pension rights and personal injury claims.
An employee can never be forced to sign a compromise agreement but, in a redundancy situation, it is often the only way for the employee to get more than the statutory minimum redundancy payment. However, if the employee has a genuine claim against the employer, the amount on offer may not be sufficient to compensate for the loss of the right to bring that claim. In such circumstances, the employer can either negotiate with the employee or, in a redundancy process, can continue with the redundancy procedure as if voluntary severance had never been mentioned.
Compromise agreements are legally binding documents and all of the terms are enforceable by the Court process so it is essential that employees considering taking voluntary severance fully consider all of the potential implications before signing.
If you are considering applying for voluntary severance or have been given a compromise agreement to sign and would like some advice, please call Joanne Stronach on 01228 552222 or email email@example.com
About the author
Joanne Stronach is a Partner in the Employment & HR team.
Published: Friday 6th May 2011