More than three-quarters of organisations use compromise agreements to avoid potential employment tribunals, according to a survey by IRS Employment Review.
The study of 94 UK organisations found that almost 70% had used compromise agreements, defined by IRS as ‘formal contracts settling any dispute between employer and employee at the point at which employment ends, and almost always involving a payment on the employer’s part’.
Agreements were used an average of twice a year, but one respondent reported using them routinely with all leavers.
The most common reason was the belief that the cost of contesting a tribunal hearing would outweigh the cost of reaching a settlement. But just under half used them to avoid potential damage to their reputation with customers and employees or because they knew they were in the wrong.
Compromise agreements were also found to be used most often after a merger so that senior employees facing redundancy would be deterred from making a claim. Performance issues also played a significant part with agreements being used on occasions where a senior manager was failing to cope with the demands of the job. Some respondents also reported using them to end the employment of staff on long-term sick leave or with poor absence records.
And many employers routinely operate a range of notice periods for different employee groups, usually based on seniority.