Understanding compromise agreements

A few months ago, one of my managers started a disciplinary process with one of his team due to poor performance. The employee put a compromise proposal forward in a letter, which included her departure. She then signed a compromise agreement and left. But now she’s threatening a case of constructive dismissal against us. How should I handle this and protect myself in future?

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A. Ashley Holden writes:

A valid and well drafted compromise agreement would generally protect you against legal action, provided the following points are covered:

• The agreement must be in writing

• The agreement must relate to a particular complaint

• The employee must have received legal advice from a relevant independent adviser on the terms and effect of the proposed agreement, and its impact on the employee’s ability to pursue any rights before an employment tribunal

• The independent adviser must have a contract of insurance, or professional indemnity insurance, covering the risk of a claim against them by the employee in respect of the advice

• The agreement must identify the adviser

• The agreement must state that the conditions regulating compromise agreements have been satisfied

A compromise agreement must identify the statutory claims being settled in order to be a binding waiver of those claims. There are further rules to comply with if the grievances were raised before 6 April 2009.

Employer and employee can also agree that the compromise agreement covers future claims of which an employee does not have knowledge at that time, but to do so, the terms of the agreement must be very clear. However, general waivers of all statutory or future claims would not be effective.

To achieve even greater protection in the future, obtain a warranty from the employee confirming the claims listed are the only ones the employee has and that you have relied on the warranty in entering into the compromise agreement. If the employee then brought a claim that wasn’t listed, it would not be binding and you could sue for return of the termination payment.

You could also include a provision in the agreement entitling you to withhold part of the termination payment for at least three months – the limitation period for bringing a claim – and only pay the remaining part if the employee has not brought any claims against you.