Compromise agreements

When an employer pays a sum of money, or reaches an agreement with an
employee to leave its employment, it will always be keen to ensure the
agreement is binding, and there can be no later ‘come back’. Until the early
1990s, this could be done by way of an agreement under the auspices of Acas, on
a Form COT3. However, in the early 1990s Acas officers, as a matter of policy,
refused to ‘rubber stamp’ agreements that had already been negotiated by the
parties involved. As a result, the concept of Compromise Agreements was
introduced in 1993, allowing an employee, on legal advice, to waive their
rights in the context of an agreement with the employer, usually for a sum of
money.

Problems with Compromise Agreements

The problem is there is a risk they might be invalid. The original wording
of the legislation stated that a Compromise Agreement must ‘relate to a
particular claim’, which was interpreted by the Employment Tribunal as one that
had actually been raised by the employee before signing the agreement.
Tribunals seem to be prepared to strike down Compromise Agreements that waive
claims that the employer had not actually raised, even though it was the
intention of both parties to have a ‘clean break’.

In 1999, the wording became even more difficult for employers. Compromise
Agreements had to relate to ‘particular proceedings’, giving rise to some
arguments that legal proceedings must actually have been threatened or even
commenced for a Compromise Agreement to be valid in waiving the particular
claim.

All this clearly detracts from the aim to allow amicable clean breaks,
provided the employee in each case was properly advised. The ability to get a
clean break is in both parties’ interests, and conversely it is in no-one’s
interest for there to be a requirement to actually create a situation where an
employee must raise particular claims even though he or she does not in fact
wish to, in order to get an amicable agreed termination package.

New proposal

This point appears to have been appreciated by the Government at last. One
of the lesser-publicised proposals in the Employment Bill is simply to remove
the requirement that Compromise Agreements must relate to particular complaints
or proceedings.

Although this might encourage the use of ‘shopping lists’, where employers
list every possible statutory claim an employee may make, at least it will
allow for amicable clean breaks. The fact the employee must be properly advised
in entering into that agreement should be sufficient protection for
individuals, enabling them to reserve claims (such as those relating to accrued
pension rights or personal injury claims) if and when that might be necessary.