Compromise agreement

What are compromise agreements and why are they common ?

A compromise agreement is a binding form of settlement agreement in employment law. In fact such agreements are the only way of finally settling an employment law dispute except by Tribunal Order or withdrawal of a claim.

They are common for the above reason i.e they are the only method and because, whilst employee and employer are rarely happen, there can be compelling reasons for using them, including :-

  • for an employer, having an unhappy or disgruntled employee remain with you is bad news for your business
  • if the employee is absent from work or already on warnings and the relationship has effectively broken down, it can still take some months to “manage out” the employee and this may still come with risks such as an unfair dismissal claim. During that period you have an unhappy situation, are paying your employee and still have risk, so it may be worth paying a sum to the employee to sign a compromise agreement.
  • from the employee viewpoint, tribunal cases are risky. In fact, more employees lose tribunal cases statistically than win them, so it may be better to accept some payment at an early stage, particularly to avoid paying lawyers fees.
  • an employee must prove loss for an unfair dismissal claim. If the employee is unfairly dismissed but gets a job quickly, the amount that might be recoverable from the employer is very limited. Whilst there is uncertainty as to job prospects, the employer may be more amenable to make some payment rather than take the risk the employee will have a bigger claim
  • there is a no costs rule in the employment tribunal, so both employer and employee will lose out if a case becomes contested, so it makes sense to at least explore the possibility of a settlement if at all possible.

These are just some of the reasons why compromise agreements are common.