When the relationship between an employer and employee sours to the point that there is a breakdown of an employer-employee relationship, an earliest recourse for either party might be to terminate the employment altogether. That is either a termination by the employer or resignation by the employee.
There is a great amount of risk in this, particularly for the employer because it carries the uncertainty of the employee entertaining a claim with the employment tribunals for their job back. Alternatively there is also the risk that they may try to claim compensation if the employee feels that they had had wrongful and unfair treatment.
This would include the employee constructively resigning from the post. This uncertainty of whether a claim has been made would endure the 3 month (less one day period) starting from the effective date of termination.
Instead of the employer being in limbo, both parties can enter into a compromise agreement, which would identify the terms surrounding their departure and add more structure and certainty to the situation.
The agreement is a legally binding agreement between the parties, which provides protection in relation to a number of scenarios, such as protection from the employee from manipulating corporate information to reaffirming post termination covenants.
It is common to make a severance payment by an advance of money to the employee in exchange for the employee waiving their right to pursue a claim in the Tribunal. This is akin to a settlement and is often referred to as a settlement agreement.
Should I accept a compromise agreement?
In some cases, an employee may ask for a clean break and suggest using a compromise agreement. This is usually when the relationship of trust and confidence has broken down and it would be beneficial for the business to accept a settlement agreement. An example would be where their grievance has not been upheld or if they have been recently disciplined and are unhappy with the penalty. Ultimately therefore, It is a business decision whether to or not to accept.
What are the legal implications of signing?
The most important thing to be aware of is that once you have signed a compromise agreement, you are accepting the terms in full and are waiving your rights to bring an employment related claim against your (former) employer in the employment tribunal.
Why do I need to see a lawyer?
It is a legal requirement that you see a lawyer under s.203 Employment Rights Act 2006, in order to explain the terms and effect of the agreement. It is deemed necessary as you are “compromising” a number of your rights by signing the agreement. You must have the compromise agreement explained by an independent solicitor before the agreement becomes binding. The solicitor giving the advice must also sign the agreement and certify that the appropriate advice has been given.
Sameer Karim is the Senior Partner of DWS solicitors who operate in London and Leicester, UK. He was a ‘highly commended director of the year’ with the IoD in 2012 and he specialises in employment and commercial law. When not at work in the firm he enjoys playing golf, spending time with his family and going to the theatre.