Settlement agreements (previously known as compromise agreements)

Legally binding settlements, in which the parties promise not to issue or continue proceedings, can be agreed before any case reaches a tribunal. This can happen through Acas conciliation (see pages 26-28), in which case the agreement is called a COT3, or through a settlement agreement reached following advice from a relevant independent advisor called a settlement agreement or compromise agreement (see below).

Confidential discussions aimed at resolving a dispute on agreed terms must not be revealed to the tribunal, even if no agreement is reached. This is known as the “without prejudice” rule.

The without prejudice rule applies to protect discussions from disclosure as long as:

• there is a pre-existing dispute between the parties, for example an ongoing disciplinary or capability procedure, or an outstanding unresolved grievance;

• there is a genuine attempt to settle the dispute; and

• a party has not behaved with obvious impropriety during the negotiations, for example by discriminating against or victimising the employee.

The “without prejudice” rule is based on the public policy objective of encouraging parties to resolve their differences outside court.

A settlement/compromise agreement must take a particular form and meet specific requirements. Otherwise it will not validly compromise a worker’s statutory rights. To be valid, it:

• must be in writing;

• must relate to a particular complaint; and

• the worker must have received advice from a relevant independent adviser as to the terms and effect of the agreement and its effect on their ability to pursue the claim in an employment tribunal.

A “relevant independent advisor” includes a solicitor with a practising certificate, a certified union official, and a certified advice worker. If an advice centre worker provides the advice, there must have been no payment.

A valid agreement will bar the worker from bringing or continuing with any of the claims identified in it. It can cover present and future claims if these are, or could have been, contemplated at the time of the agreement (Byrnell v BT EAT/0383/04).

In Hinton v University of East London [2005] IRLR 552, an agreement that referred to “all claims” was not valid to compromise any claim the employee might have. An agreement must clearly indicate the particular proceedings being compromised.

If a representative enters into an agreement on an individual’s behalf, that individual must have given them authority to do so. In Gloystarne & Co Ltd v Martin [2001] IRLR 15, Mr Martin was not bound by a settlement agreement made by a union official through Acas because he had not given his consent. However, once the appropriate authority has been given, it is virtually impossible to unravel a compromise agreement (Gibb v Maidstone & Tunbridge Wells NHS Trust [2010] EWCA Civ.678).

Compromise agreements often include promises by the worker to keep its terms confidential, especially the settlement sum, only disclosing it to their immediate family. It is very important to observe this kind of term, otherwise you risk losing the settlement sum (Fahim Imam-Sadeque v Bluebay Asset Management (Services) Limited [2012] EWHC 3511 QB).