The Use of Compromise Agreements in Redundancy Situations


What is a Compromise Agreement?

Compromise Agreements are legally binding, written agreements between employers and employees which bring the employment relationship to an end in a mutually agreed way. It is recognised by statute and is the only way (other than through an LRA facilitated settlement) an employee can validly “contract out” of their employment rights. Under a Compromise Agreement, an employee agrees to give up any right to pursue potential claims against their former employer, usually in exchange for financial compensation.

Compromise Agreements are useful in many circumstances and they are a specifically useful tool for employers who are faced with the difficult task of restructuring their business. Compromise agreements are commonly used in a redundancy situation where employers want to ensure they part with their employees in an amicable way without having to follow a full redundancy procedure and also in order to protect themselves from any future industrial tribunal claims. A compromise agreement can provide additional protection for employers, including reaffirming post-termination restrictions and duties of confidentiality, while preventing employees from making defamatory comments about the business or its management. Compromise agreements are flexible and terms can be adapted to suit individual business needs.

When can you use Compromise Agreements?

Where there is an existing dispute between an employer and an employee, as long as there is no fraud, undue influence or “unambiguous impropriety” (such as perjury or blackmail), they can enter into discussions on a “without prejudice” basis with a view to terminating the employment relationship. In these circumstances, such pre-termination discussions cannot be used as evidence in any subsequent industrial tribunal proceedings.  If, as a result of the “without prejudice” discussions, an agreement is reached between the parties, the employee will enter into a compromise agreement.

What are the legal requirements for a binding compromise agreement?

In order for the agreement to be legally binding under NI employment legislation, the following conditions need to be satisfied:

(1) The compromise agreement must be in writing,

(2) The agreement must cite which employment claims are being compromised, and

(3) The employee must have received independent legal advice regarding the purpose and effect of the terms of the agreement from a qualified solicitor. It is an established custom and practice that an employer will make a contribution to the legal costs incurred for the employee to seek independent advice.

At Millar McCall Wylie, we recognise that many businesses are being forced to consider re-structuring their business in light of the ongoing Covid-19 pandemic. Therefore, we believe compromise agreements provide a quick and amicable resolution for both parties to resolve matters in difficult circumstances. We are well experienced in drafting Compromise Agreements for employers. We can also advise employees in relation to the terms and conditions of any Compromise Agreements offered to them.

Jan Cunningham or David Mitchell in our Employment Team are available to both employees and employers who require advice and assistance in relation to the above.