In the

United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and ...

, a compromise agreement is a specific type of

contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tr ...

, regulated by

statute A statute is a formal written enactment of a legislative authority that governs the legal entities of a city, state, or country by way of consent. Typically, statutes command or prohibit something, or declare policy. Statutes are rules made by ...

, between an

employer Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any o ...

and its

employee Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any ot ...

(or ex-employee) under which the employee receives consideration, often a negotiated financial sum, in exchange for agreeing that he or she will have no further claim against the employer as a result of any breach of a statutory obligation by the employer. Except when ACAS have been involved and arranged a COT3 settlement, COT3 being the name of the form used, compromise agreements are the only means whereby an employee can waive statutory claims such as

unfair dismissal In labour law, unfair dismissal is an act of employment termination made without good reason or contrary to the country's specific legislation. Situation per country Australia (See: '' unfair dismissal in Australia'') Australia has long-standing ...

discrimination Discrimination is the act of making unjustified distinctions between people based on the groups, classes, or other categories to which they belong or are perceived to belong. People may be discriminated on the basis of Racial discrimination, r ...

or entitlements to a redundancy payment.What is Unfair Dismissal
/ref> The agreement will only be valid where (i) it is in writing and (ii) the employee has received independent legal advice from a relevant adviser who has professional

indemnity insurance In contract law, an indemnity is a contractual obligation of one party (the ''indemnitor'') to compensate the loss incurred by another party (the ''indemnitee'') due to the relevant acts of the indemnitor or any other party. The duty to indemni ...

. An employee cannot compromise potential future claims, though claims that have already arisen, unknown to the employee, can be waived. The Employment Rights Act 1996 provides at Section 203 for the conditions relating to the validity of Compromise Agreements. The Equality Act 2010 also regulates the conditions for the validity of Compromise Agreements, but a possible drafting error may have affected the scope of Compromise Agreements to settle discrimination complaints. In practice, a compromise agreement will also contain a

waiver A waiver is the voluntary relinquishment or surrender of some known right or privilege. Regulatory agencies of state departments or the federal government may issue waivers to exempt companies from certain regulations. For example, a United St ...

of any claim for

breach of contract Breach of contract is a legal cause of action and a type of civil wrong, in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other part ...

as well as statutory claims, though such a waiver does not need to satisfy the same requirements in order to be valid, as a claim for breach of contract is a common-law claim. Each agreement should be tailored to meet the facts and circumstances of the case. It is therefore difficult to adopt a one size fits all approach to drafting of a compromise agreement, although this approach might be used if appropriate in more generic cases. The detail and existence of a compromise agreement should remain confidential from third parties. The advantage for the employer is that they are able to draw a line under an employee's departure or complaint and are protected from future claims. The advantage for the employee is the consideration, such as a financial sum, received in return is provided for by a legally-binding contract. In addition to confidentiality clauses, a Compromise Agreement may also include an agreed reference. A breach of the compromise agreement and any financial loss that breach may incur for the other party, can result in legal action in a court of law. In January 2013, the UK Government proposed a number of changes. This includes renaming compromise agreements as "settlement agreements".

References

{{Reflist United Kingdom labour law Industrial agreements Employment compensation

See also

References