Negotiating a compromise agreement – an introduction

We’re going to be taking a look in this post at negotiating compromise agreements from an employee’s perspective – a post on how an employer should approach a potential compromise agreement situation will be addressed at a later date. We’ll therefore take a brief look at the issues below in examining how and when to negotiate a compromise agreement. Each of these issues will then be analysed in greater detail in future posts.

  1. Is the situation amenable to a compromise agreement?
  2. Analysis of the potential compromise agreement
  3. Negotiation with your employer
  4. To sign the agreement or not?

Is the situation amenable to a compromise agreement?

There are a variety of situations which might call for the negotiation of a compromise agreement. The most common ones are as follows (in no particular order):

  1. The employee has been made redundant or is at risk of redundancy
  2. The employee has been subjected to disciplinary action or an investigation on allegations of incapacity or misconduct
  3. The employee is contemplating resigning because of the way that they have been treated by their employer or their colleagues
  4. The employee has been discriminated against or harassed in some way by their employer

The above situations aren’t mutually exclusive – discrimination claims, for example, often overlap with constructive dismissal claims.

In order to determine whether a situation is amenable to a compromise agreement, the employee must either ask for a compromise agreement or – more simply – be offered a compromise agreement by their employer. The latter situation is generally the less complicated one – the employee doesn’t have to risk “going out on a limb” in these circumstances.

Analysis of the potential compromise agreement

If you’ve been offered a compromise agreement or your employer has agreed to look at the possibility of a compromise agreement then the question that normally springs to mind for employee is “how much can I get?”. This is, however, not the correct way that such a situation should be approached. There are generally four questions that should be asked to analyse the potential value of a compromise agreement:

  1. How potential claims does the employee have in the Employment Tribunal? (i.e. unfair dismissal, constructive unfair dismissal, discrimination, harassment etc.)
  2. How strong are those claims?
  3. What would those claims be worth if they were successful at the Employment Tribunal?
  4. What is a reasonable settlement value for the compromise agreement, accounting for litigation risk? (i.e. the risk that the claims might fail)

For example, Mr X may have a claim for unfair dismissal. He was dismissed summarily after two years’ employment for no discernible reason and there was no procedure carried out in dismissing him. Let’s say that this claim has a 75% chance of success in the Employment Tribunal, should he choose to pursue this course of action. Further, if he were to succeed in his claim then it would be worth £10,000 (Employment Tribunal awards generally aren’t that high). What would the reasonable settlement value of Mr X’s compromise agreement be? It would be £7,500.

Negotiation with your employer

In order to negotiate a compromise agreement there will need to be some degree of dialogue with your employer. This will normally involve both parties (the employer and the employee – or their representatives) making offers and counter-offers, attempting to reach what both parties deem to be a reasonable settlement value. You may choose to involve a solicitor or not at this point – it’s up to you. However, you should bear in mind the above analysis and be reasonable in negotiating the compromise agreement – otherwise your efforts are probably going to be in vain.

To sign the agreement or not?

After the negotiations are completed you have to decide whether to sign the compromise agreement or not – once the agreement is signed and date by both parties then it will be a binding contract.