In the United Kingdom, a compromise agreement is a specific type of contract, regulated by statute, between an employer and its employee (or ex-employee) under which the employee receives consideration, often a negotiated financial sum, in exchange for agreeing that he or she will have no further claim against the employer as a result of any breach of a statutory obligation by the employer.
Except when ACAS have been involved and arranged a COT3 settlement, COT3 being the name of the form used, compromise agreements are the only means whereby an employee can waive statutory claims such as unfair dismissal, discrimination or entitlements to a redundancy payment. The agreement will only be valid where (i) it is in writing and (ii) the employee has received independent legal advice from a relevant adviser who has professional indemnity insurance. An employee cannot compromise potential future claims, though claims that have already arisen, unknown to the employee, can be waived. The Employment Rights Act 1996 provides at Section 203 for the conditions relating to the validity of Compromise Agreements. The Equality Act 2010 also regulates the conditions for the validity of Compromise Agreements, but a possible drafting error may have affected the scope of Compromise Agreements to settle discrimination complaints.
In practice, a compromise agreement will also contain a waiver of any claim for breach of contract as well as statutory claims, though such a waiver does not need to satisfy the same requirements in order to be valid, as a claim for breach of contract is a common-law claim.
Each agreement must be tailored to meet the facts and circumstances of the case. It is therefore impossible to adopt a one size fits all approach to drafting of a compromise agreement. The detail and existence of a compromise agreement should remain confidential from third parties.
The advantage for the employer is that they are able to draw a line under an employee's departure or complaint and are protected from future claims. The advantage for the employee is the consideration, such as a financial sum, received in return is provided for by a legally-binding contract. In addition to confidentiality clauses, a Compromise Agreement may also include an agreed reference. A breach of the compromise agreement and any financial loss that breach may incur for the other party, can result in legal action in a court of law.
Famous quotes containing the words agreement and/or compromise:
“No one can doubt, that the convention for the distinction of property, and for the stability of possession, is of all circumstances the most necessary to the establishment of human society, and that after the agreement for the fixing and observing of this rule, there remains little or nothing to be done towards settling a perfect harmony and concord.”
—David Hume (17111776)
“The trail of the serpent reaches into all the lucrative professions and practices of man. Each has its own wrongs. Each finds a tender and very intelligent conscience a disqualification for success. Each requires of the practitioner a certain shutting of the eyes, a certain dapperness and compliance, an acceptance of customs, a sequestration from the sentiments of generosity and love, a compromise of private opinion and lofty integrity.”
—Ralph Waldo Emerson (18031882)