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A Compromising Position

It is often thought that Compromise Agreements are only relevant to situations where employment has been or is shortly to be terminated. It is true this is where they are most common but an employer and employee can enter into an agreement to settle claims in circumstances where employment is continuing.

Claims relating to contractual terms in the contract can be waived by entering into a contractual agreement. However, any agreement to settle or waive most statutory claims will be void unless it meets one of the exceptions. The two most commonly used are:

  • Agreed through ACAS, usually referred to as a COT3 or;
  • Recorded in a Compromise Agreement that complies with certain statutory requirements

Compromise Agreements take many forms and can be from 2 to 34 pages. What is necessary is that:

  • The agreement must be in writing.
  • The agreement must relate to a “particular complaint” or “particular proceedings.” Specific details need to be included rather than a general “all claims”
  • The employee must have received legal advice from a relevant independent adviser on the terms and effect of the proposed agreement and its effect on the employee’s ability to pursue any rights before an employment tribunal.
  • The independent adviser must have a current contract of insurance, or professional indemnity insurance, covering the risk of a claim against them by the employee in respect of the advice.
  • The agreement must identify the adviser.
  • The agreement must state that the conditions regulating compromise agreements have been satisfied.

Although it is common practice for the employer to pay a fixed contribution to the cost of the legal advice the employee receives it is not a necessary requirement of a valid agreement.

The government are currently proposing that this type of arrangement be renamed a settlement agreement, and that employers should be able to raise this issue without it being used as a claim for constructive dismissal by the employee.