Changes to Compromise Agreements

Posted by Sarah Peacock on
Settlement Agreements replace Compromise Agreements from 29 July 2013.

Although this is effectively a name change (all of the legal requirements for a Compromise Agreement will still have to be met and independent legal advice will still need to be sought), the process for offering compromise/settlement agreements generally should be reconsidered in the light of a new ACAS Code of Practice on settlement agreements .

The Code is designed to accompany the new regime for conducting confidential settlement discussions ("pre-termination negotiations") which cannot be used in evidence before Employment Tribunals for ordinary unfair dismissal claims, providing certain conditions are met.

However there are significant limitations to the new regime, because any negotiations where there is scope for a discrimination or automatically unfair dismissal claim (e.g. whistleblowing) will not be protected in this way. However, our view is that the Code should be followed, if possible, even if the employer is not seeking to rely on "pre-termination negotiations".

Allowing the employee to be accompanied and to have 10 calendar days to consider the agreement are not legal requirements; but employers should view them as best practice and depart from them only where there is good reason to do so. If you allow the employee to be accompanied (and bearing in mind the nature of the discussions, they may not want to be), you should ensure that the companion has paid time off to do this and is told that he/she must keep the negotiations confidential.

Formal (e.g. disciplinary) processes are still required if a settlement agreement is refused.

ACAS has also now published "Settlement Agreements – A Guide" which has no formal legal status but provides some important pointers for employers. The ACAS guidance suggests that employers should consider whether the offer of a settlement agreement:

  • is the best solution
  • might appear to an employee to be "out of the blue" and how that might affect the employee – or the wider workforce – if a settlement agreement is not reached; and
  • might in itself constitute unlawful discrimination or victimisation.

The ACAS guidance also includes "optional template letters" and a "model settlement agreement" which, with notes, runs to some 25 pages.

Although the ACAS Code and Guide are very helpful, there remain a number of potential pitfalls when using pre-termination negotiations and settlement agreements. This is recognised by the guidance in particular which seeks to check that employers have truly understood the risks and even suggests – contrary to initial Government proposals – that they might want to seek legal advice.

This and the length of the Guide implicitly accepts that such processes are not as simple as the Government originally suggested. Nevertheless the new regime may, in the right circumstances, prove a useful tool for employers to broach a mutually agreed severance deal.

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Sarah specialises in all aspects of employment law, including health and safety, offering comprehensive and pragmatic commercial advice.

Sarah Peacock
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