BCR Explores Law – Compromise Agreements

What are Compromise Agreements?

A Compromise Agreement (sometimes called a Settlement Agreement) is a legally binding agreement between an employer and an employee which sets out the terms upon which an employee’s employment is to be terminated. Compromise agreements usually contain terms by which the employee agrees to settle any claims which the employee may have as a consequence of their employment by the employer (including claims for unfair dismissal and discrimination). In exchange, there will usually be terms setting out the payment of financial compensation by the employer to the employee. It is usually a term of the Compromise Agreement that the details set out within it are required to be kept confidential, including the circumstances leading to the end of employment and any payments made.

Why do you need a lawyer?

Compromise agreements invariably involve the waiving by the employee of potentially significant legal rights. It is very important, for both the employee and the employer, that employees are fully and properly advised as to the effect of a compromise agreement. As such, a compromise agreement in Jersey law is only legally binding if a Jersey-qualified lawyer provides advice to the employee and certifies that they have done so. A compromise agreement will also require the employee to confirm that they have received independent legal advice.

Not only is a lawyer needed in order for the compromise agreement to be valid; there are other reasons why employers and employees should seek legal advice. A specialist employment lawyer, such as one of our team, will also be able to advise on any statutory or contractual claims the employee may have and discuss any other compensation sums to which they might be entitled. Advice can also be provided to employees as to any discrimination which the employee could have faced during employment. For employers, it is important to get legally sound, commercially sensible advice on any response or further claims raised by an employee when negotiating the final terms of a compromise agreement.

Why are compromise agreements used?

There is a range of scenarios in which compromise agreements are used. Most of these scenarios boil down to a situation in which either the employer, or the employee, or occasionally both of them, consider that there are reasons that the employment relationship should end and neither party wishes to follow a long drawn-out process, such as a performance or disciplinary procedure. Compromise agreements are also used where an employee is faced with redundancy.

What are an employee’s rights?

If a compromise agreement is offered, the employee has the right to independent legal advice. In some instances employers may pay for, or contribute towards, the legal fees incurred by the employee in seeking that advice. Upon being offered a compromise agreement, the employee should not be asked to decide immediately whether or not to accept; the employer should provide the employee with a “reasonable” time to seek legal advice and consider matters. What is a “reasonable” time will depend on the facts and circumstances of the particular case but generally a period of about 10 days is offered. An employee also has the right to refuse to sign the compromise agreement if they consider that its terms are not fair, or the compensation offered is not all to which they are entitled. The rejection of a compromise agreement is not without risk; another reason for an employee to seek legal advice.

Next steps

The disengagement of an employer and an employee is a stressful process for both sides. Knowing employment entitlements will make things less stressful and more manageable for both sides. If you are an employer facing a difficult disengagement, or an employee who has been presented with a compromise agreement, then get in touch with one of our team of experts who will be able to help guide you through the process.