Compromise agreement
Encyclopedia
In the United Kingdom
, a compromise agreement is a specific type of contract
, regulated by statute
, between an employer and its employee (or ex-employee) under which the employee receives a negotiated financial sum in exchange for agreeing that he or she will have no further claim against the employer as a result of any breach of a statutory obligation by the employer.
Except when ACAS
have been involved and arranged a COT3 settlement, compromise agreements are the only means whereby an employee can waive statutory claims such as unfair dismissal
, discrimination
or redundancy. The agreement will only be valid where (i) it is in writing and (ii) the employee has received independent advice
from a solicitor
who has professional indemnity insurance
. An employee cannot compromise potential future claims, though claims that have already arisen, unknown to the employee, can be waived.
In practice, a compromise agreement will also contain a waiver
of any claim for breach of contract
as well as statutory claims, though such a waiver does not need to satisfy the same requirements in order to be valid.
Each agreement must be tailored to meet the facts and circumstances of the case. It is therefore impossible to adopt a one size fits all approach to drafting of a compromise agreement.
The advantage for the employer is that they are able to draw a line under an employee's departure and feel protected from future claims. The advantage for the employee is the financial sum received in return.
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
, a compromise agreement is a specific type of contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
, regulated by statute
Statute
A statute is a formal written enactment of a legislative authority that governs a state, city, or county. Typically, statutes command or prohibit something, or declare policy. The word is often used to distinguish law made by legislative bodies from case law, decided by courts, and regulations...
, between an employer and its employee (or ex-employee) under which the employee receives a negotiated financial sum in exchange for agreeing that he or she will have no further claim against the employer as a result of any breach of a statutory obligation by the employer.
Except when ACAS
Acas
The Advisory, Conciliation and Arbitration Service is a Crown non-departmental public body of the Government of the United Kingdom. Its purpose is to improve organisations and working life through the promotion and facilitation of strong industrial relations practice...
have been involved and arranged a COT3 settlement, compromise agreements are the only means whereby an employee can waive statutory claims such as unfair dismissal
Unfair dismissal
Unfair dismissal is the term used in UK labour law to describe an employer's action when terminating an employee's employment contrary to the requirements of the Employment Rights Act 1996...
, discrimination
Discrimination
Discrimination is the prejudicial treatment of an individual based on their membership in a certain group or category. It involves the actual behaviors towards groups such as excluding or restricting members of one group from opportunities that are available to another group. The term began to be...
or redundancy. The agreement will only be valid where (i) it is in writing and (ii) the employee has received independent advice
Legal advice
In the common law, legal advice is the giving of a formal opinion regarding the substance or procedure of the law by an officer of the court , ordinarily in exchange for financial or other tangible compensation...
from a solicitor
Solicitor
Solicitors are lawyers who traditionally deal with any legal matter including conducting proceedings in courts. In the United Kingdom, a few Australian states and the Republic of Ireland, the legal profession is split between solicitors and barristers , and a lawyer will usually only hold one title...
who has professional indemnity insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
. An employee cannot compromise potential future claims, though claims that have already arisen, unknown to the employee, can be waived.
In practice, a compromise agreement will also contain a waiver
Waiver
A waiver is the voluntary relinquishment or surrender of some known right or privilege.While a waiver is often in writing, sometimes a person's actions can act as a waiver. An example of a written waiver is a disclaimer, which becomes a waiver when accepted...
of any claim for breach of contract
Breach of contract
Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance....
as well as statutory claims, though such a waiver does not need to satisfy the same requirements in order to be valid.
Each agreement must be tailored to meet the facts and circumstances of the case. It is therefore impossible to adopt a one size fits all approach to drafting of a compromise agreement.
The advantage for the employer is that they are able to draw a line under an employee's departure and feel protected from future claims. The advantage for the employee is the financial sum received in return.
See also
- Gag orderGag orderA gag order is an order, sometimes a legal order by a court or government, other times a private order by an employer or other institution, restricting information or comment from being made public.Gag orders are often used against participants involved in a lawsuit or criminal trial...
- LayoffLayoffLayoff , also called redundancy in the UK, is the temporary suspension or permanent termination of employment of an employee or a group of employees for business reasons, such as when certain positions are no longer necessary or when a business slow-down occurs...
- OutsourcingOutsourcingOutsourcing is the process of contracting a business function to someone else.-Overview:The term outsourcing is used inconsistently but usually involves the contracting out of a business function - commonly one previously performed in-house - to an external provider...
- RestructuringRestructuringRestructuring is the corporate management term for the act of reorganizing the legal, ownership, operational, or other structures of a company for the purpose of making it more profitable, or better organized for its present needs...
- UnemploymentUnemploymentUnemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
- Severance packageSeverance packageA severance package is pay and benefits an employee receives when they leave employment at a company. In addition to the employee's remaining regular pay, it may include some of the following:* An additional payment based on months of service...
- Voluntary redundancyVoluntary redundancyVoluntary redundancy is a financial incentive offered by an organisation to its employees with the purpose of attracting volunteers to leave the organisation, due to downsizing or restructuring situations. The purpose is to circumvent union employee regulation laws.-Reasons:A Voluntary Redundancy...