Use of compromise agreements on the rise in one-third of companies

One-third of employers said that their use of compromise agreements had increased over the past few years, while 16% said it had decreased.

This is according to a survey by XpertHR, which found that 80% of companies use compromise agreements to protect their organisations against legal claims from ex-employees.

Half (52%) of employers who used compromise agreements for departing employees said that they helped reduce the number of tribunal claims made against them.

A compromise agreement is a formal, legally binding agreement made between an employer and employee in which the worker agrees not to pursue particular claims in relation to their employment, usually in return for a financial settlement.

However, these are not used on a routine basis in companies taking part in the survey. On average, six were used by each organisation over the past two years and just one in five used them as a matter of course during redundancy situations.

Charlotte Wolf, author of the report, said that the legally-binding agreements can help organisations manage high-risk employment relations issues, such as the exit of senior employees, workers leaving because of ill-health and redundancies.

“They protect the employer from spurious claims and at the same time allow the employee to leave with a sense of dignity and an attractive pay-off,” she commented.

“However, if they are used too frequently, departing employees will learn to expect the financial rewards associated with them.”

Read the full findings of the XpertHR report on compromise agreements