Warning over compromise agreements

A recession-fuelled increase in the use of compromise agreements – where an employee agrees not to make a claim against their employer in return for a financial settlement – could be depriving employees of the best exit deal, the Law Society is warning.

With firms making redundancies in response to the recession, the Law Society says compromise agreements in relation to redundancies, unfair dismissal or unlawful discrimination are being used by businesses to ensure they can avoid future claims by former employees.

The Law Society is warning that agreements offered to outgoing employees might not offer them the best package and has issued a reminder to employers that it is a legal requirement that before signing such an agreement, employees have received independent advice.

According to the Society, employers will typically pay or contribute towards the legal expenses incurred in receiving the legal advice on the agreement.

Law Society President, Robert Heslett, commented: “Compromise agreements are an effective tool in ensuring both employer and employee can resolve an issue fairly. However, the agreements will usually emanate from the employer and employees should not take it as read that it is the best deal on the table."

Compromise agreements can include clauses that go beyond the simple compromise of potential tribunal claims, the Society says. Examples it gives include clauses about not competing with the employer in the future; the return or retention of the employer’s equipment; the parties not making derogatory remarks against each other; and the employee providing assistance to the employer, without remuneration, in the future.

The Law Society has issued a warning to employees that while they can reasonably be expected to waive their rights in respect of claims they are currently aware of, such as redundancy payment or notice pay, they should take care not to waive rights in respect of matters that could present themselves in future such as those relating to pensions or personal injury claims.