Settlement Agreements- Change to Compromise Agreements

From 29 July there will be new rules relating to the legal agreements which bring employment to an end.

Compromise Agreements will be known as Settlement Agreements. It is believed that these agreements will make it easier for employers to agree terms with departing employees.

A Settlement Agreement is a simplified version of a Compromise Agreement. The use of the word “compromise” is thought to have implied that one of the parties is compromising their position and therefore on the face of it may seem unfair. The settlement Agreement is still legally binding once it has been signed by all parties including the employee’s legal adviser.

The main difference between a Settlement Agreement and a Compromise Agreement is that any offers or discussions in relation to any settlement offered cannot be used or referred to in any unfair dismissal claim at an Employment Tribunal. Therefore an employer may approach an employee who is under performing regarding termination of their contract by way of settlement agreement without the need to commence disciplinary proceedings. The employee is not obliged to accept the offer. If the employee refuses the package then the employer will thereafter need to carry out a fair procedure in order to dismiss the employee. The employee is also not able to rely on these settlement discussions to argue that the employment relationship has become untenable and therefore resign and raise a claim for constructive dismissal.

These discussions which are known as Pre Termination discussions are protected in relation to unfair dismissal claims but not if the employee has been dismissed for an automatically unfair reason eg taking maternity leave or asserting a statutory right to the National Minimum Wage. The content of these discussions can also be used in discrimination claims or breach of contract claims.
There are therefore potential risks for employers entering into this type of agreement and they should seek advice regarding any issues.
For employees, there is still a requirement to take independent legal advice on the agreement but this cost is routinely  covered by the employer.
Employment Law  is experienced in drafting and negotiating settlement agreements. To arrange an appointment to discuss further contact This email address is being protected from spambots. You need JavaScript enabled to view it.