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Goodbye Compromise Agreements, Hello Settlement Agreements

Fiona Martin

Fiona Martin

There were a number of changes introduced by the coalition government on 29 July 2013 which included the renaming of Compromise Agreements, which are now called “Settlement Agreements“. I and other employment law specialists believe this to be a cosmetic change.

Regardless of this, I am coming across a number of cases where despite a Compromise Agreement having been given to an employee before 29 July the employer is now seeking to amend the document and call it a Settlement Agreement. In all these cases there has been no good reason for doing so.

Consequently, I thought it might be useful to set out the similarities and differences between a Compromise and Settlement Agreement.

Under the new Acas Code of Practice on Settlement Agreements there is no need to complete or even start internal processes before offering a Settlement Agreement, and no need for any offers to be put in writing. There is also no need for the employee to be accompanied to any meetings. However, the final Agreement must be recorded in writing in the usual way. So, no change here.

However, employees should now be given a reasonable time to consider the offer. The Code suggests 10 calendar days as a reasonable amount of time. This is an improvement as we often had to help employees who only had a day to get advice and agree to sign a Compromise Agreement, which could be stressful for both the employee and the solicitor advising them!

Apart from this, all usual conditions of a Compromise Agreement will need to be satisfied in that the employee is entitled to independent legal advice and the substance of the Settlement Agreement will be similar to a Compromise Agreement.

The new Acas Settlement Agreement Guide has now been published and provides more detailed guidance and practical advice including template letters as well as a model Settlement Agreement. This will assist employers as in the past they had to pay their employment solicitor for an up to date template

However, most employment lawyers believe that the Government missed a trick here as this replicates the contents of the Compromise Agreement rather than removing a lot of the unnecessarily complicated legal jargon to make Settlement Agreements more user friendly.

The only real change with the introduction of Settlement Agreements is that some conversations will be protected and not admissible in Employment Tribunal proceedings relating to ordinary unfair dismissal. 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 has raised a grievance or indeed where there were capability or performance proceedings in place.

Employers should be cautious about relying on having a protected conversation. Even if there is only an ordinary unfair dismissal claim these conversations can be produced at the Tribunal if there has been “improper behaviour”.

This means that if a claim arises due to bullying or alleged discrimination, and let’s face it, “protected characteristics” such as age and sex relate to everyone, then these conversations may be brought before a Tribunal.

Consequently, the new rules on protected conversations and Settlement Agreements could lull employers into believing that they can raise any issue confidentially without this being put before a Tribunal. It may also encourage them to circumvent fair procedures such as performance reviews leaving them exposed to unfounded claims of discrimination.

We would therefore always advise that employers follow best practice by treating their employees fairly and using their capability or conduct procedures. In addition, Settlement Agreements are not going to help employers deal with the thorny issue of an employee’s retirement now the default retirement age has been repealed as this is potentially discriminatory.

We would always advise that before offering a Settlement Agreement you check with a specialist employment lawyer how best to introduce this to your employee so that you are not at risk of Employment Tribunal claims.

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