Employment Compromise Agreement or Settlement Agreement — What’s the Difference?

If you’ve been offered a ‘compromise agreement’, you may be wondering why your solicitor is calling it a ‘settlement agreement’ instead. The answer is simple – the name changed in 2013, but the purpose and legal effect remained the same. In a nutshell, a compromise agreement is a written contract that allows the parties to a dispute (employer and employee) to settle that dispute subject to certain written terms. The terms usually incorporate certain monetary provisions in exchange for the employee agreeing to waive their rights to sue their employer. Agreements have become longer and more involved as the statutory framework itself becomes more complex.

When Employment Compromise Agreements Changed

On 29 July 2013, the Enterprise and Regulatory Reform Act 2013 (ERRA) changed the name of compromise agreements to settlement agreements supposedly because this language more accurately describes what is happening between the parties and to encourage greater workplace dispute resolution. The government also thought that an employee who chooses not to enter into such an agreement would not want to be seen as ‘compromising’ their position. In practical terms and speaking from experience, semantics makes no difference to the reality of settling internal employment disputes. Employers use the agreements in exactly the same way as they always have done and employees know the implications of being presented with one. Invariably, once a settlement agreement discussion is underway, the parties have reached the end of the line. Another perhaps more important change introduced by ERRA, is that it has relaxed the circumstances in which the parties may engage in protected conversations. Traditionally, in order for a conversation to be protected, the parties had to be engaged in a dispute.

The statutory position now appears to be that a dispute is no longer necessary before a conversation can be considered protected. The sting in the tail however, is that certain pre-termination negotiations (which may or may not lead to a settlement agreement) are admissible in unfair dismissal cases where there has been improper behaviour. This is not dissimilar to the existing position, which holds that an employer may not use the without prejudice veil as a means of engaging in discriminatory conduct.

Improper Behaviour in Settlement Agreements

The meaning of ‘improper behaviour’ is not defined in the legislation but the ACAS Code of Practice on Settlement Agreements provides examples. These include how an agreement is presented to an employee by an employer who has concerns about an employee’s performance. Particularly threatening negotiations may also be caught by the rule on admissibility. The Code makes further suggestions, such as allowing parties reasonable time to consider a settlement proposal and offering the employee the right to be accompanied. Our view is that it is always better to ensure that there is an existing dispute before entering into protected or without prejudice discussions. Failure to do so as an employer, may mean that you end up arguing about the admissibility of evidence later and when it is too late. In other words, carry on regardless of the new provisions. Read the ACAS Code of Practice on Settlement Agreements.

Do I Need a Solicitor for a Compromise or Settlement Agreement?

Going through any of the matters covered in this blog post? If so you can read more about how our Settlement Agreement Solicitors help employees, or how we help employers with terminations and redundancy matters.

For a full overview of our services for employees, visit our employment solicitors for employees page.