For years, compromise agreements have been used to end employment relationships. In some industries and at certain levels of seniority, compromise agreements are often expected if the employment relationship runs into difficulties. But in the current economic climate employers are becoming more reluctant to offer compromise agreements. So when is it good to compromise?

For the employer, a compromise agreement enables them to manage their risk. It can also provide a business reason for treating a departing employee better than is legally required. If there is a genuine risk of a legal claim an employer needs to think about the expense, reputation risk and management time involved and balance that against the costs of a compromise agreement. One of the key considerations is that in order for a compromise agreement to be valid the employee has to receive independent advice, usually at the employer’s expense. If the independent advisor is doing their job, the employee will receive good advice about their potential claims and negotiating on the agreement. This can work for or against the employer, depending on the facts of the situation and the advice given.

Can the employer force an employee to sign a compromise agreement? In short, no. But an employer can offer significant incentives, financial and otherwise to encourage signature. The recent case of Garratt v Mirror Group Newspapers suggests that you can have a term incorporated into an employment contract which means an employee would have to sign a compromise agreement before receiving an enhanced payment. In the Garratt case it was an enhanced redundancy payment, but it could be extended to cover any type of enhanced payment.

Most importantly, in the current climate employees shouldn’t expect a compromise agreement to be offered as a matter of course. We’re finding employers are tightening up on costs and are taking a much tougher stance on employee claims. Some employers are now starting to take claims through to tribunal in the hope that a victory will discourage other employees from bringing claims in the hope of a speedy settlement. If a compromise agreement is offered the considerations for the employee are similar to those for the employer. The expense, stress and time involved in legal action should not be underestimated. A key consideration for employees can be receiving an agreed reference – something that costs the employer very little but can be vital to the employee.

So there are always reasons to compromise on both sides, the question is, are they compelling enough? Compromise should always be considered, but it isn’t always the correct path to follow. It is important to think about all the options carefully and be prepared to change your mind if circumstances change – particularly if new information comes to light.

This information is believed to be correct as at June 2011. It is not a substitute for legal advice and no liability attaches to its use. Specific and personal legal advice should be taken on any individual matter.