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Ask Employment Law |
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There is no
substitute for legal advice on the actual situation you find yourself in. The
information posted on this site is for general information only, is based on |
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Question: |
Compromise Agreements: What is a compromise
agreement?
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Answer: |
A
'Compromise Agreement' is an agreement prescribed by statute to bring to an
end statutory claims (ie unfair dismissal or discrimination) arising out of
the employee's employment or termination of employment. A simple agreement in
writing signed by the employer will not prevent the ex employee from bringing
a claim. In practice, compromise agreements tend to list out any conceivable
claim that could possibly be imagined. Basically
the employee has to go off and get independent legal advice before signing
away his/her legal rights. The solicitor should advise the employee on any
potential claims arising so that the employee fully understands the legal
issues, and the value of any potential claims, before signing away their
rights. The solicitor who provides the advice must have a form of indemnity
insurance in place, so that if the employee subsequently decides that s/he
was poorly advised, s/he can sue the solicitor for negligence instead. The
solicitor will generally: 1.
Advise the employee on whether any claims arise on the termination of
employment 2.
If so, advise the employee what those claims might be worth 3.
In the light of that information, advise the employee whether the sum offered
is reasonable in the circumstances 4.
Explain the meaning and effect of the agreement to the employee and advise
whether anything needs to be amended or changed. Employers
generally contribute to the employee’s costs of getting independent legal
advice. The going rate is generally £250 + VAT, at least in the South of
England, whilst for workers in the City the contribution is often in the
region of £500 + VAT. Modesty does not prevent me from mentioning me
referring you to my own micro-site www.compromise-agreement.org or www.reculversolicitors.co.uk for
advice. Employers
would generally be well advised to enter into compromise agreements with the
employees that they are dismissing if they are offering any sort of enhanced
payments. Unless they do so, there is a potential risk that the employee may
accept the money paid to them, but still pursue a claim in the Employment
Tribunal or elsewhere. In
order for a compromise agreement to be binding, the following conditions must
be satisfied: ·
The agreement must be in writing ·
It must relate to a particular complaint ·
The employee must have received advice from a relevant
independent adviser (normally a solicitor) as to the terms and effect of the
proposed agreement and in particular its effect on his ability to pursue his
rights before an employment tribunal. ·
There must be in force, when the employer gives the advice, a
contract of insurance or an indemnity covering the risk of a claim by the
employee in respect of loss arising from the advice. ·
The agreement must identify the adviser ·
The agreement must state the conditions regulating compromise
agreements under the relevant Act are satisfied. If
you are an employer and currently use a standard Compromise Agreement precedent,
you may have to update it in the light of Hinton v In
the Hinton case, the University forgot to list s47B ‘whistle-blower’ claims
in those settled, and a general catch-all settlement provision was not
effective. Hinton was therefore free to crack on with his whistle-blowing
claim, no doubt much to the University’s annoyance. Employers would be wise
to review their compromise agreements regularly. For
the taxable status of payments made to the employee via a Compromise
Agreement click on our page on Redundancy
Payments. See also what
generally goes in a compromise agreement? Last
updated: July 2010 |
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Employment
Solicitor Regulated
by the Solicitors Regulation Authority ©
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