Compromise Agreement Legal Advice – Should You Sign Or Not?

(Newswire.net — February, 19  2013) Milton Keynes, UK — Employers are not legally required by law to offer employees an employment compromise agreement on the termination of a contract of employment. Equally, employees are not legally obliged to sign these agreements.

So why do employers ask outgoing employees to sign lengthy legal documents entitled Without Prejudice Compromise Agreement and should employees agree to sign?

To answer these questions one must first understand the true purpose of these employment related agreements and why the law prescribes the need for employees to obtain independent compromise agreement legal advice.

The Purpose of a Compromise Agreement

Settlement Agreements or compromise agreements as they are more commonly known, are legal documents between an employee and employer for the specific purpose of bringing an end to an employment contract with a promise from the employee not to pursue any employment compensation claims. In exchange for agreeing to sign away this legal right to sue, the employer agrees to pay a severance package by way of compensation.

Under UK employment law, employers may only terminate a contract of employment in certain well defined circumstances, which are referred to as “fair reasons” for dismissal, of which there are six.

For example, it is fair to dismiss an employee when they are not able to do their job properly, or in circumstances where an employee has conducted himself badly entitling the employer to dismiss, and for example in cases of redundancy where the employer has insufficient work for the number of staff employed.

However, even in circumstances where an employer is able to end a contract of employment for a potentially “fair reason”, an employer may still ask an employee to sign a compromise agreement. For example, employees faced with redundancy are often but not always, asked to sign a redundancy compromise agreement.

To understand this, one simply needs to refer back to the principal purpose of a compromise agreement, which is to prevent an employee from pursuing any potential employment claims at the end of the employment contract. For example, bringing a claim for unfair dismissal, or constructive dismissal, or for claims of race, sex or age discrimination, and so forth.

It is because of the complex nature of UK employment legislation today that many employees now seek to take a belt and braces approach when dealing with employees termination of employment.

In affect the employer is taking out an insurance policy against the future risk of potential employment litigation. Which then brings us to the question.

Should an Employee Agree to Sign a Compromise Agreement or Not?

There would be no reason for an employee to sign away a legal right to sue an employer where an employer is only offering a financial severance deal that is equal to the minimum financial entitlement since the employer would be gaining a benefit and the employee obtaining nothing in return.

Unless the employer is offering an enhanced financial package over and above what an employee is entitled to on termination of contract, there would be no benefit and no reason for an employee to  enter into an employment compromise agreement.

If however, an employee is offered a generous severance package beyond the legal minimum entitlement, in those circumstances it may be in the employee’s interest to enter into an agreement since most enhanced deals are conditional upon signing an agreement.

How is an employee to know whether a compromise agreement deal is fair and reasonable?

Ultimately, this depends on numerous factors such as what the law says an employee is entitled to as a minimum, the individual circumstances of the termination, the reason for the termination, whether there are grounds to resist the dismissal, additional contractual benefits of the employee for example bonus entitlements, how long the employee has been employed, and how keen the employer is to conclude matters quickly.

For specific advice on an individual employer’s termination of contract and terms of compromise agreement, seek the advice of a specialist employment compromise agreement lawyer, who can consider the unique circumstances of each case and advise accordingly.

In part 2 of compromise agreement legal advice, we take a look at some of the more persuasive arguments that may be used to negotiate a better settlement.

For more general advice and guidance and answers to some of the the most frequently asked question on compromise agreements visit http://cardonaandco.co.uk/compromiseagreement . Or you can contact the writer on the contact information below.