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Compromise Agreements or Settlement Agreements usually provide for termination of employment and settlement of all and any claims which may arise from the employment relationship (excluding a short list of exemptions such as latent personal injury claims, accrued pension rights and claims to enforce the terms of the agreement).
The agreement usually provides for a payment of all monies due such as notice pay, outstanding wages, and expenses, in addition to a compensation amount. The compensation amount is often based on the employee’s statutory redundancy entitlement with some enhancement; the level of enhancement usually depends on the specific circumstances.
A Compromise Agreement is how such an agreement is referenced in Northern Ireland, whereas they are called Settlement Agreements in England.
These agreements are often used for voluntary redundancies or to reach an agreed exit that avoids either party using more formal internal processes such as grievance, disciplinary or capability and to eliminate the risk of a viable employment claim being brought against the employer.
The relevant provisions in the legislation that governs these agreements means that they are not legally enforceable unless the employee has had the benefit of independent legal advice before agreeing the terms.
For that reason, compromise or settlement agreements will usually provide for a financial contribution to the fees of the independent advisor to the employee.
This is legal terminology which is designed to protect the communications between parties during genuine efforts to resolve disputes.
Communications and draft agreements which are prepared for the purpose of trying to resolve legal issues (to avoid litigation) that are marked “without prejudice” cannot be relied upon by either party in any subsequent litigation. For example, an employee who refuses to accept a proposed Compromise Agreement which was sent on a “without prejudice” basis cannot later rely upon it in Tribunal to attempt to evidence wrongdoing by their employer.
To avail of the protection, all communications – verbal or written – should be set out clearly as being “without prejudice” (the words should be said at the outset or stated on the top of the correspondence). In order to successfully rely on the protection, both parties need to understand what these words mean so if it is unclear if the other side is fully aware, the concept should be explained to them before proceeding.
Once fully executed, a well drafted Compromise Agreement will be a legally binding agreement between the parties. If either party breaches the agreement there can be significant consequences.
We have a specialist team of Employment Lawyers who are highly experienced in drafting, advising and negotiating compromise agreements for both employers and employees.
We can provide legal advice to employers on all aspects of introducing /negotiating these agreements and advise whether they are an appropriate legal tool for your situation. We can also provide a draft agreement and negotiate with the employee’s appointed solicitor until a final agreement is reached. We can advise on appropriate compensation sums as well as the level of risk and exposure of the exit without agreement.
We can provide legal advice to employees who have been provided with a draft compromise agreement by their employer. We can advise on appropriate levels of compensation based on your circumstances and potential claims which may be available.
We can also advise on other clauses and benefits which should be sought or negotiated on with an employer in the process of negotiating the terms of the Compromise Agreement/Settlement Agreement. Our team has significant experience in assisting Executives, Directors and Senior Employees to successfully negotiate significant exit packages on very favourable terms.
We can discuss your specific needs and can design a bespoke legal advice package that best meets your needs. This may be possible on a fixed fee arrangement depending on the level of input you require from us. Please don’t hesitate to get in touch with our Employment team if you would like to discuss any of the issues raised in this article further.
This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact our Employment & Immigration team at Cleaver Fulton Rankin for further advice or information.