When an employer pays a sum of money to an employee by way of a termination
settlement, the employer will want to ensure the employee cannot then turn
around, having pocketed the money, and make employment claims in a tribunal or
the courts. While it is possible for an employee to waive contractual rights in
a simple agreement accepting the termination payment, it is not possible for
this to occur in respect of statutory rights.
The relevant statutes make clear that statutory rights cannot be waived by
an employee by contract, otherwise many employers would simply routinely
include waivers in employment contracts. Just look at how many waivers of the
48-hour maximum working week now appear in standard employment documentation.
Until 1993, the only way an employer could ensure that the statutory claims
of an employee were waived – for example, unfair dismissal and sex
discrimination – was to get the agreement "rubber stamped" by an Acas
officer and compromised on a Form COT3. This meant the employer could pay the
termination payment without fear of any come-back by the employee, and the
employee could seek substantial sums in settlement from the employer on the
basis that the employer could be assured of a clean break.
But Acas changed its policy in the early 1990s and refused to provide COT3
settlements where they had not been involved in the negotiation process
In response to the demand for another way to achieve a "clean
break", Compromise Agreements were implemented into English law in 1993.
Essentially, these allow employees to waive statutory rights provided they had
received independent legal advice. The safeguard was that if they have received
negligent advice, they could sue the adviser, so one stipulation of the
agreements was that the adviser had a "policy of insurance".
The main difficulty now about compromise agreements is that they must relate
to particular claims which have been raised by the employee before signing the
agreement. So it is not possible to have a blanket waiver of all claims the
employee might have – notwithstanding the existence of legal advice at the time
Recently, several agreements have been declared invalid on the grounds that
they claims they purport to waive were not sufficiently "in play"
before the agreement was signed. At least one tribunal went as far to say the
employee ought to be withdrawing an IT1 as part of the compromise agreement to
make it valid.
This particular stipulation is regrettable. Every employer should now have
some hesitation when using compromise agreements when paying substantial
termination payments, on the ground that the agreement may not be enforceable.
The position has been made more difficult with the recent change in the law
which states that, for unfair dismissal waivers, the agreements must
"relate to the particular proceedings" – raising a presumption that
tribunal proceedings must be on-foot before the agreement being signed.
By Richard Brimelow