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Why a New Settlement Beats the Old Compromise

Posted: 8th November 2012

Employment Legal Advice

Employment Legal Advice

By Malcolm Jones

One of my most common calls at the moment is from employees who need legal advice on a compromise agreement.  The caller usually knows that their employment is ending and that they are accepting a tax-free financial carrot in exchange for not making any employment tribunal claims.  To be legally binding the employee needs independent legal advice to show no one was pointing a gun to ‘encourage’ them to sign and that they know the value of the claims they are giving up.

The employer can be a large organisation or a small firm.  Some employees are being pushed out for personal reasons but most accept they are being made redundant because their employer needs fewer employees due to a lack of work.

I usually tell callers that I am seeing far too many of these ‘compromise agreements’ at the moment; assuming that more people are losing their jobs.  If unemployment rates really are going down that may not be correct.  It may be that compromise agreements are assisting the labour market move people to where they are needed.  Certainly most people I see are concerned but reasonably optimistic about finding another job.

Just as everyone is getting to know what a ‘compromise agreement’ is the name is about to be changed to ‘settlement agreement’.  The government says this will ‘more accurately describe their purpose as part of a wider strategy to increase their use’.

This strategy seems to be designed to extend the use of compromise agreements to cases of poor performance or frequent absences without the need for a formal disciplinary procedure or giving employees an opportunity to improve.  Employers may think the cost and delay of following a ‘proper’ procedure together with the risk of a claim even if they get it right makes it worth paying something extra to the employee.  Apparently employers frequently don’t make settlement offers for fear that an employee will claim constructive dismissal arguing that their continuing role is untenable.

No employee will have to accept a settlement offer.  Much may depend on any redundancy insurance they may have, how it will affect a claim for Job Seekers Allowance, the amount of the payment and the prospects for a successful claim.

If the strategy works I might be getting even more calls from employees with settlement agreements than I do about compromise agreements.


If you would like to speak to anyone regarding the above matters, please ring Malcolm or Scott on 01423 789059 or email at or who will be happy to speak with you.