Compromise agreements become settlement agreements

03 November 2013
Compromise agreements become settlement agreements

Effective 29 July 2013, compromise agreements are replaced by settlement agreements.

Settlement agreements are legally binding contracts that waive an individual's rights to make a claim listed in the agreement to an employment tribunal or court.

Settlement agreements can be entered into voluntarily at any stage of employment to end an employment relationship on agreed terms, for example where there is an ongoing dispute. They may be proposed by the employee or the employer and typically involve some negotiation. They usually include a payment to the employee and often include an agreement reference for the employee.

Acas has produced statutory and non-statutory guidance on settlement agreements which is available from the Acas website.

In order to be legally binding, a settlement agreement must satisfy a number of requirements. It must be:

  • in writing
  • relate to a specific complaint or proceedings
  • the employee must have received advice from an independent legal adviser eg. a solicitor or certified and authorised member of a trade union, who has professional indemnity insurance
  • the agreement must identify the adviser
  • the agreement must state that the statutory conditions regulating the settlement have been met
  • the employee must be given a reasonable amount of time to consider the proposed conditions of the agreement, a minimum of 10 calendar days unless the parties agree otherwise.

From 29 July 2013 employers will be able to enter into discussions with employees about the termination of their employment, even where there has not been any prior dispute, and these discussions will not be disclosable to an Employment Tribunal.

This protection will only prevent what is stated in the settlement offer, or during discussions about it, from being inadmissible in ordinary unfair dismissal proceedings. However such offer or discussions may be referred to in any other case, including:

  • automatic unfair dismissal
  • discrimination
  • whistle blowing
  • breach of contract or unfair dismissal claims where there has been "improper behaviour" such as discrimination, blackmail and criminal activity.

In practice, critics are sceptical whether the introduction of these measures will provide the certainty that employers require that the content of offers and discussions are not admissible in court.

For further information, see the redundancy and dismissals section of HRBird.

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