Use of compromise agreements on the rise

Research has indicated that the use of compromise agreements is on the rise, but what is a compromise agreement and who does it really benefit?

Compromise agreements are a legally binding contract between an employer and an employee whose employment is being terminated. The termination of employment could be a redundancy situation, a dismissal, or a normal situation where an employee has chosen to leave and move on to a new job elsewhere.

Employers use compromise agreements in these situations to limit the possibility of a future employment claim being made against them in an Employment Tribunal by the soon-to-be ex-employee, especially a spurious or vexatious claim.

The employee must agree to relinquish their right to pursue an employment tribunal claim in return for a sum of money paid to them by the employer.

The survey found that 80% of companies are now using compromise agreements.

Charlotte Wolf, the writer of the report by XpertHR who conducted the research, said compromise agreements “protect the employer from spurious claims and at the same time allow the employee to leave with a sense of dignity and an attractive pay-off”.

52% of the organisations surveyed said that the use of compromise agreements had helped to reduce the number of employment claims made against them.

Even though the use of compromise agreements is on the rise, they are still not used routinely by employers. According to XpertHR’s research, on average six compromise agreements have been used by each organisation surveyed in the last two years.

Charlotte Wolf offers an explanation for this careful use: “If used too frequently, departing employees will learn to expect the financial rewards associated with them”.

However, one in five organisations uses compromise agreements as a matter of course in redundancy situations.

The increase in the use of compromise agreements should please the coalition government, especially as Vince Cable today revealed new measures to reduce the number of claims brought before employment tribunals as part of their employment law reforms.

As compromise agreements require employees to give up their legal right to make a claim against their employer, they will only be binding if the employee receives independent legal advice from an employment solicitor. Independent advice ensures that the employee only agrees to the compromise agreement if it is within their best interests.