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Is It Risky To Reuse A Compromise Agreement By Substituting Its Reference To Settlement Agreement?

“We had a Compromise Agreement drafted by a lawyer a couple of years ago…and thought we could reuse this by substituting the reference to Compromise Agreement to Settlement Agreement. Is that risky? Have things really moved on in a couple of years?”

Fiona Martin of Martin Searle Solicitors answers answers:

There are two issues here. The first is whether there are major differences between the old style Compromise Agreement and its replacement, the Settlement Agreement.

The second is whether it is safe to adapt a Compromise or Settlement Agreement, which has been provided to another employee, in what may be an entirely different set of circumstances.

The Coalition Government brought in changes and Compromise Agreements were renamed Settlement Agreements on 29 July 2013. Although this was merely a cosmetic renaming exercise, the guiding principles as set out by the Acas Code of Practice on Settlement Agreements set out recommended practice to ensure conversations could be had in secret.

The main change with the introduction of Settlement Agreements was that conversations would be protected and not admissible in Employment Tribunal proceedings, if they related to ordinary unfair dismissal claims. Previously the ability to talk “without prejudice” or “off the record” had only existed where there was a serious dispute between the parties. This did not include situations where an employee raised a grievance or indeed where there were capability or performance proceedings in place.

However, ordinary unfair dismissals are fairly narrow. If there are any issues likely to arise relating to protected characteristics (such as age and sex) then these conversations will not be protected and can be admissible in a tribunal or court. Consequently, this will not help employers wishing to move on an employee’s retirement date now the default retirement age has been repealed as this would be  potentially discriminatory.

In addition, the Acas Code provides guidance on reasonable practice, setting out guidance on the time employees offered a Settlement Agreement should be given so this constitutes reasonable time to consider the offer. The Code suggests ten calendar days as a reasonable amount of time.

HR Managers and employers should be cautious about relying on protected conversations if there has been “improper behaviour“. This means that if a claim arises due to bullying or alleged discrimination, then the conversations making the offer of a Settlement Agreement could be disclosed to a tribunal.

This is why our firm advises that employers set the scene by following their own  capability or conduct procedures first, before offering Settlement Agreements.

This way there is no threat of “take this or else we will do this” as the manger or employer has already started a fair process which will continue if a Settlement Agreement is not acceptable to the employee. The Settlement Agreement is merely another option. This also tests whether there is really enough evidence for capability to really be a live issue.

So reusing a Compromise Agreement is not a problem as long as regard is given to the Acas Code of Practice on Settlement Agreements, in terms of how this is presented to the employee.

However, adapting one Compromise or Settlement Agreement drawn up for one employee and using it for another can be risky if not adapted to the circumstances.

Employees are offered these type of Agreements in all sorts of circumstances. An Agreement offered where there are likely to be redundancies is different to offering one where there is a background of performance or conduct issues.

Also employees may be on different types of contract and you will need to check whether notice can be offered tax free and paid in lieu and indeed whether the contractual terms are the same.

When reusing an Agreement important questions to consider are:

  1. Is this a situation where it is appropriate to offer a reference and if so should this be any more than a basic reference?
  2. Is there a Payment in Lieu of Notice (PILON) clause in the employee’s contract? If there is, notice cannot be paid tax free.
  3. Do you require a clause which introduces or reiterates post termination restrictions in order to protect your business?
  4. Do you wish there to be a clause stating that the employee has not been offered a new job or be in anticipation of this as you are compensating them for loss of earnings?
  5. Do you want to tighten any of the clauses around confidentiality so the employee will sign confirming that all company documents have been irretrievably deleted?
  6. Does an agreed internal or external announcement need to be attached to the Agreement to ensure a smooth termination process?
  7. Does the confidentiality clause fit the circumstances? If it has been a public redundancy exercise then the circumstances behind the termination may not need to be confidential, just the existence of the Agreement and the amount offered.
  8. Have you checked the employee’s contract to see whether benefits are payable during the notice period?
  9. If you are placing an employee on garden leave do you have the contractual right to do so? Again check the employee’s contract.
  10. Does the employee’s contract require them to use up any unused holiday during their notice period?

In summary, reusing an older version of a document always lends the risk of being out of date. The time it takes to check that all the mentioned legislation the employee is waiving their right to bring may warrant paying for an up to date template.

Indeed, the considerations set out above, if dealt with efficiently, could even end up saving the business money. It may well transpire that it would have been more economic to instruct your lawyer to draft a tailor made Settlement Agreement than to “make do”. Well I would say that wouldn’t I!

This article was written by Fiona Martin, head of Employment Law at Martin Searle Solicitors, for settlementagreement.co.uk.

About the author

Martin Searle Solicitors

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Founded in Brighton in 2004, Martin Searle Solicitors is an award-winning law firm providing specialist legal advice and support in employment law for employers and employees, as well as expert guidance and legal advice in community care law.

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