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Settling claims with employees

27 November 2009
Settling claims with employees

Paying an employee money to go away quietly does not protect you from future claims over notice pay, unfair dismissal or discrimination. For that, you need to ensure that you have a compromise agreement in place. Katee Dias explains.


THE PROBLEM

My head chef left following a heated argument. He then threatened to bring a claim of constructive dismissal so I paid him some money to go away quietly. However, I have just received a claim form from the Employment Tribunal in which he makes a claim. How can this be?


THE LAW

It is possible to obtain a waiver of employment claims from employees and ex-employees but this needs to be done in a particular way. The method by which a waiver is achieved depends on the type of claims that an employee has, or alleges he has.

If an employee has contractual claims only - for example, a claim for their notice pay - a straightforward contract between you and the employee can be entered into as an effective waiver. However, if the employee has statutory claims - for example, a claim for unfair dismissal or discrimination - these can be waived only in two ways: by way of a special type of agreement called a "compromise agreement" or via an agreement drafted by the Advisory, Conciliation and Arbitration Service (ACAS), which is a body that has the power to settle a number of claims that form the subject of a tribunal claim.

  • The most common method of waiving claims prior to proceedings actually being issued is the compromise agreement. In order to be binding, the following must be satisfied:
  • The agreement must be in writing and must be tailored to the employee's particular complaint - it should not simply be a general waiver of claims.
  • The employee must receive independent legal advice on the terms and effect of the agreement and the adviser must be named in the agreement.
  • The adviser must be insured in respect of any claims by the employee in consequence of their advice.
  • The agreement must state that the conditions regulating compromise agreement have been satisfied.

EXPERT ADVICE

In your particular situation, your head chef alleges that he has a statutory claim of constructive dismissal. As you did not enter into a binding compromise agreement with him, there is nothing preventing him from bringing such a claim, regardless of the fact you had an oral agreement that he would take a sum of money in exchange for not pursuing this claim.

As he has lodged a claim against you in the tribunal, you are now forced to defend it or, alternatively, to negotiate with him and pay an additional sum of money to settle it. Any such settlement should be recorded either in a compromise agreement or via ACAS.

CHECK LIST

Carefully consider the potential claims that an employee can bring and ensure that you obtain the correct form of waiver of those claims.

  • Remember that any negotiations about settlement of potential claims should be conducted "without prejudice".
  • For a compromise agreement to be binding, there are various conditions which must be met.
  • An employee must take independent legal advice on the terms and effect of a compromise agreement and in particular the effect it has on the employee's ability to pursue their claims before a tribunal or court. The employer traditionally makes a contribution towards the employee's legal fees.
  • It is not possible to waive certain claims, including accrued pension rights and personal injury claims that the employee is unaware of.
  • It is important that the compromise agreement is tailored to the particular circumstances, since a general waiver could mean the agreement is too wide and, therefore, unenforceable. Employers should, therefore, consult their legal advisers to ensure that any compromise agreement is drafted adequately.

BEWARE!

If an employer does not secure a binding waiver of claims, the employee is able to bring an action against them, despite any payment having been made by the employer.

CONTACT

Katee Dias
Goodman Derrick LLP
020 7404 0606

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