What is a settlement agreement?
A settlement agreement is an effective way of settling a workplace dispute. It is effectively a contract between the employer and employee which, once signed is legally binding. The purpose of a compromise agreement is to prevent an employee from bringing certain types of claims in exchange for some sort of consideration from the employer, usually financial.
Benefits of a compromise agreement
Although a compromise agreement is likely to result in the employer paying out money to the employee, the employer can be reassured that a claimant cannot be brought in the employment tribunal by the employee once the agreement is signed. Many employers prefer the certainty of paying out a fixed amount to an employee via a compromise agreement than taking the risk of legal costs and potentially an award / settlement should the employee bring a claim in the tribunal, because there is no way of guaranteeing or fixing the amount of the latter until the conclusion of the matter. A reference can also be annexed to the compromise agreement if appropriate in the circumstances, which can be an extra tool for negotiations.
Compromise agreements offer further benefits to employers in that they can be a way of imposing restrictive covenants on departing employees – for example, it may be a way of preventing an employee from setting up a competing business in the same town.
After the compromise agreement has been drafted, the employee will need to seek independent legal advice on the agreement before signing it in order for the agreement to be valid. It is therefore usual for an employer to make a set contribution toward the employee’s legal fees, and this should be accounted for when determining how much money to pay to the employee.
Getting it right
It is important to get the wording of a compromise agreement right first time. Failure to do so can result in both the employer’s and employee’s needs and requirements not being fully met, and potentially increased costs if the employee’s solicitor needs to negotiate or re-draft any part of the agreement and asks the employer to be responsible for the fees.
It is also recommended that a standard compromise agreement is not used ‘across the board’. As every employee has different roles and therefore terms of employment, it is risky to use a ‘standard’ compromise agreement which will not cover the needs of the employer.
Whilst compromise agreements are most commonly used when an employee is leaving employment, they may also be appropriate for settling ongoing workplace disputes, if the employee is to remain in employment.
Services for employers
If you are an employer and need assistance drafting a compromise agreement, or tailoring your current agreement to suit a particular employee or set of circumstances, Simpson Sissons & Brooke offers various options.
- An ‘off-the-shelf’ compromise agreement at a fixed price which guides you through and allows you to tailor a standard document to your specifications. We also offer a document-checking service if you are still unsure once you have completed the document.
- Bespoke compromise agreement advice and assistance – please contact us as we may be able to offer assistance on a fixed-fee basis.