What is a compromise agreement?
As a Jersey business owner or manager, you may have come across the term “compromise agreement” and been unsure of what it is. Compromise agreements give businesses and employees an alternative to lengthy employment tribunals that can be expensive and stressful.
At Parslows, we guide businesses through compromise agreements and ensure that our clients receive objective, level-headed advice on all Jersey employment law issues. We’ve put together this short guide to help you with any future compromise agreements. The guide will detail what a compromise agreement is, what they can involve and how to deal with any issues or concerns.
What is a compromise agreement?
A compromise agreement is a legally binding document between an Employer business and an employee. This agreement will settle any claims relating to dismissal or any other issues that may end the employment relationship in the workplace. The agreement will usually state that the employee will not pursue any claims against the business in return for financial compensation. If the parties agree to compromise their working relationship they are required under the Employment (Jersey) Law 2003 to enter into such an agreement.
While compromise agreement is the legal term, they are also known as:
- Settlement agreements.
- Termination agreement.
What are the effects of a compromise agreement?
When an Employer business and an employee sign an agreement, it will bring a full and final end to the employment relationship. Because of this, the employer must consider and draft the agreement carefully.
The agreement can cover remuneration, holiday pay and any other payments from the date of dismissal to the signing of the agreement.
When can you use a compromise agreement?
While the most common use of a compromise agreement is prior to an employee’s dismissal, a business can also use them in other circumstances. A business may offer an agreement when an employee makes a claim against a company under their contract of employment or statute. Employees can make these claims at any point in their job, from recruitment to dismissal or resignation.
Businesses usually create an agreement so that in return for an appropriate monetary sum an employee will not resort to the Jersey employment tribunal. This can save the business money, time and stress and helps the business and the employee move on from the matter.
Examples when businesses use a compromise agreement?
Both an employer business and an employee can suggest a compromise agreement, and there are various circumstances when they can decide to make use of one. Some of the most common cases include:
- Redundancy — a business may offer an employee an agreement to avoid the consultation process during redundancy. This will result in an employee receiving redundancy pay or payment in place of notice.
- Gross misconduct — businesses will sometimes offer an employee an agreement as an alternative to standard dismissal procedure in cases of gross misconduct. In these instances, an employer will often provide a basic reference to allow the employee to find a new job without a dismissal on record.
- Unfair dismissal — businesses may opt for a compromise agreement when an employee is claiming unfair dismissal. If the claim is well-founded, businesses can use the agreement to avoid a tribunal.
- Discrimination — much like unfair dismissal, businesses can use an agreement to avoid legal action.
What are the benefits of a compromise agreement?
As already mentioned, an agreement offers businesses and employees an alternative to lengthy and stressful legal proceedings and tribunals. The agreement provides a fast resolution to issues, alongside other benefits, such as:
- They allow for final legal closure in the shortest possible time.
- Businesses can choose to pay more than statutory minimums to expedite the process.
- Businesses can use non-financial benefits like references, garden leave or company schemes to facilitate the agreement.
- They offer a clean break to both the business and the employee.
If the agreement is a fair compromise between the business and employee, the main benefit is the speed of the process for both parties.
What are the legal requirements of a compromise agreement?
As compromise agreements are legally binding documents, they must meet specific stipulations to be legal. These stipulations are set out in the Employment (Jersey) Law 2003 and include:
- The agreement must be in writing.
- The agreement must be in relation to a specific proceeding or complaint.
- The employee must receive legal advice from an independent advisor, like a trade union representative or lawyer.
- All independent advisors must have insurance covering any potential claims from the employee.
- The agreements must identify all independent advisors.
You’ll also need to include a statement that the agreement meets and satisfies these stipulations.
What does a compromise agreement contain?
Beyond the legal requirements and stipulations of a settlement agreement, the agreement’s contents are at the discretion of the parties involved. But there are standard clauses that are often included, such as:
- A contribution to the employee’s legal fees.
- Compensation for the employee’s loss of employment and earnings.
- A waiver of claims by the employee.
- Employer indemnity for tax.
Businesses should carefully consider the agreement’s contents and seek legal advice on drafting and creating the document. Ensuring that your company or business has made the document correctly will speed up the process and prevent any issues from arising.
Are there minimum and maximum compromise agreement payout limits?
There are no legal minimum limits for compromise agreement payouts. The payout is usually determined by the business’s assessment of claim validity and the risk of losing a tribunal. Companies will assess the financial risk of a loss at tribunal and the time and stress of defending the claim to determine the settlement amount.
Employment tribunals have maximum awards from claims, and businesses will often take these into account when considering a claim and a payout. Companies will usually use these maximums as guidelines when negotiating an agreement.
There are some exceptions to the maximum limit in tribunals for cases that involve discrimination and whistleblowing. Businesses will need to consider these cases carefully to come to a fair agreement.
Do employees need to accept a compromise agreement?
While an employee may have been open to the idea of an agreement, they are not legally required to accept the agreement and can turn it down. If they turn down the agreement, they are free to make a claim against a business.
This also means that a company will be required to proceed down the dismissal procedural route to be able to dismiss them. It’s important to note that you as the Employer will still need to follow all disciplinary procedures if you decide to pursue dismissal, as they can arise at a tribunal.
Compromise agreement terms need to be fair and agreed to by both parties. As employees are required to receive legal advice, they will sign the agreement which will be witnessed by a Jersey lawyer.
Can an employee make a claim after a compromise agreement?
A Jersey compromise agreement will generally include all issues that may have arisen between a business and an employee, such as:
- Unfair dismissal.
- Personal injury.
- Holiday pay.
Once the employee has signed the agreement, it would be challenging to bring a claim against the business. In most cases the compromise agreement is in full and final settlement of all claims. As such the agreement must deal with all issues between the company and the employee so that no claims can be made later.
Am I required to pay for employee legal advice on a compromise agreement?
No law requires employers to pay for employee legal representation. But in recent years, it has become more common for employers to contribute to fees. For a compromise agreement to be legally binding, it requires a certificate from a lawyer. By contributing to your employee’s legal fees, you can avoid any future claims and ensure that they obtain proper legal advice.