Settlement Agreements (formerly Compromise Agreements) - UPDATE

2013-08-02 01:00

Settlement Agreements (formerly known as Compromise Agreements)


Sometime, and sadly, the only way for a colleague to move on in their career is via what had until fairly recently (29 July 2013) been called a Compromise Agreement.  Some people still refer to it as this, by the way, but it is formally called a Settlement Agreement.

These Settlement Agreements allow a school and a teacher (including school leaders, who sometimes accept a Settlement Agreement) to agree that the latter will no longer work in the school, that s/he will not take the school to an employment tribunal over the ending of the employment, and usually, that the teacher will receive some money on the termination of their employment.

There is also usually an Agreed Reference which the school will provide when the teacher applies for another post.


Settlement Agreements are confidential, and usually they include an agreement that neither side will say that the employment was terminated via a Settlement Agreement.


This article cannot cover all the ins and outs of Settlement Agreements. There are, however, some important points that you should bear in mind when considering a S.A. proposed by the school to terminate your employment.



1.  You need expert and effective advice. Unions – at regional level – should be able to provide this, although the experience of some teachers is that they are less helpful than contacting a specialised Employment lawyer. However, a union will often withdraw its support should you start dealing with a lawyer.  So beware.


Leaving date under the Settlement Agreement

2. For the sake of every future job application to a school, you need to accept only the standard leaving dates – December 31, April 30 and August 31 – as the date for termination of your employment. You need not be in school until then (or the end of term), but you should be officially on the books. A leaving date other than these will raise a warning flag to a school receiving your application. You may need to give up some of the financial payment in order to cover salary and on-costs for this period, but do so.


I cannot emphasise enough how important this point about end of contract date is.


Child Protection and Safeguarding

3. You should ensure that the Agreed Reference includes a statement about child protection.

More suggestions are included in the article  Agreed References


There are more points to bear in mind, but your advisor should outline these to you, depending on your individual case and circumstances.


I attach a link to a copy of the ACAS Code of Practice on Settlement Agreements. I have printed below a short extract, but do check the ACAS website to see if there is new version just published.  Always wise for any document.


What are settlement agreements?

 3. Settlement agreements are legally binding contracts which can be used to end the employment relationship on agreed terms. Their main feature is that they waive an individual’s right to make a claim to a court or employment tribunal on the matters that are specifically covered in the agreement. Settlement agreements may be proposed prior to undertaking any other formal process. They usually include some form of payment to the employee by the employer and may also include a reference.

 4. For a settlement agreement to be legally valid the following conditions must be met:

 a. The agreement must be in writing;

 b. The agreement must relate to a particular complaint or proceedings

 c. The employee must have received advice from a relevant independent adviser on the terms and effect of the proposed agreement and its effect on the employee’s ability to pursue that complaint or proceedings before an employment tribunal

 d. The independent adviser must have a current contract of insurance or professional indemnity insurance covering the risk of a claim by the employee in respect of loss arising from that advice

 e. The agreement must identify the adviser

 f. The agreement must state that the applicable statutory conditions regulating the settlement agreement have been satisfied.

 5. Settlement agreements are voluntary. Parties do not have to agree them or enter into discussions about them if they do not wish to do so. Equally the parties do not have to accept the terms initially proposed to them. There can be a process of negotiation during which both sides make proposals and counter proposals until an agreement is reached, or both parties recognise that no agreement is possible.


My first point – getting the best possible advice – is the main one. Do not be rushed into anything without this.


I am adding now an extract from a legal website that specialises in Settlement Agreements


What is a pre-termination negotiation?

Pre-termination negotiations are a new concept introduced under  Section 111A of the Employment Rights Act 1996 and come into force on 29th July 2013.  But what are they? It essentially means that an employer who offers to end an employment relationship on agreed terms (that being under a settlement agreement), can do so on a confidential basis without the employee being able to rely on the details of the conversation as evidence in an unfair dismissal claim at an employment tribunal. Such negotiations can be treated as confidential even though there is no prior dispute or where you were unaware of an employment problem.  Previously, there had to be a “prior dispute” (such as a capability issue) for the employer to have protection if an offer was made.

The aim of  pre-termination negotiations is clear; it is to help employers facilitate  an early exit of under -performing staff without the necessity of going through a lengthy process, such as a performance improvement planwhich approach, in turn, could also be more beneficial to an employee. The employee does not, though, have to accept the offer (or indeed any later offer).

The provisions of pre-termination negotiations are limited to standard unfair dismissal claims only. They will not apply, for example, to discrimination cases, whistle blowing, harassment, victimisation, breach of contract, wrongful dismissal or other types of claim.

ACAS have issued a statutory Code of Practice on Settlement Agreements, which helpfully sets out how settlement agreements should operate and also provides best practice of  how pre-termination negotiations should be undertaken-  although it is not binding.The Code also gives examples of “improper behaviour” associated with reaching a settlement, and highlights that protection for an employer of a pre-termination negotiation will not apply where there has been such improper behaviour. It will be up to a tribunal to decide in each case whether there has been improper behaviour which can include:-

  • Putting undue pressure on you to agree an offer, for example, by saying before any disciplinary proceedings have begun that youWILL be dismissed if you don’t accept the offer;
  • All forms of bullying and harassment and intimidation;
  • Physical assault or the threat of it.
You will need to look out for an unexpected approach by your manger who wants to engage in a pre-termination negotiation, as what you say or do at this early stage could tactically later damage your position.  You should preferably listen to what your employer has to say at the first meeting, without committing yourself either way, and then take legal advice if you are unsure how to respond.

Capability and Settlements Agreements and references - note this if you are  currently going through capability proceedings  


There was a new regulation from September 2012 that if a prospective new employer asks the previous employer if there has been any formal capability proceedings in the previous 2 years the previous school must say so and give details.


That's irrespective of what the Settlement Agreement says about agreed references. An agreed reference in a Settlement Agreement can't prevent formal capability being disclosed if asked about.


So how much money might you get?


Some people believe, erroneously, that accepting a Settlement Agreement means getting a lot of money.  Three or even six months' salary is often suggested.  They even advise a base figure of £15,000 for starting negotiations.  


But the actual situation is often very different.  Here is the view from experience of Rott Weiler, a regular poster on the Forums:


I've been involved in negotiating quite a few Settlement Agreements over the years (from the management side as a Chair of Governors - yes I know, Boo! Hiss!) and in LA schools I've been in, the LA lawyers would never allow a settlement amount to be negotiated on the basis of £15,000 as a starting point.  Whatever you might think of the morality, lawyers are not interested in morality, and will tell schools that to settle on the basis of a starting point of several months' pay would be an improper use of public funds and they would not allow it.

The legal underpinning to settlement amounts is that schools must secure 'value for money' in the amount they pay. That's a statutory obligation. This means that it must be financially advantageous to settle 'out of court' rather than going to court or Tribunal. That's not an exact science but the starting point with the layers is normally, in my experience, that they estimate what the worst case would be if it went to Tribunal and the school/LA lost - how much would the school/LA have to pay?

Then what is the lawyers' opinion of the teacher's chance of winning? Multiply the two together and that's an estimate of what LA will be willing to pay. eg, if lawyers reckon the most Tribunal would award is £10,000 and employee has a 60% chance of success they'll recommend the school settles up to £6,000. (If the probability of employee winning is well below 50% they'll more likely recommend offering nothing and 'see you in court').

After going through the calculation of "worst case x probability of success" the school/LA will then add on the costs it would incur if it let the case go to Tribunal and which it would 'save' if it signs a Settlement Agreement. That's the legal costs school/LA would pay to be represented at Tribunal plus the SLT time in dealing with the matter. SLT time is actually one of the biggest factors in prompting schools settle rather than go to Tribunal, although it's not so easy to put a £££ amount against it when deciding whether to settle or go to Tribunal.

That won't be the school's opening offer though. Knowing the union will negotiate they'll start with something much lower.

That's how lawyers approach the 'compensation' amount. In additon there may be a pay in lieu of notice depending when settlement agreement take effect, if the employee is off sick whether their sick pay entitlement has run out etc.

You may not like the cold financial logic of that approach, but that's how it works. I'm neither attcking nor defending it, just sharing with OP my experience of what happens in practice.


And a final bucket of cold water from me, Theo.  I once offered £10.  Ten.  And the Union advice was to accept it.  So the colleague did.


Final final point:  

Re-read this blog - there are very important factors to bear in mind, especially the point about date of termination of employment being Dec 31,  April 30 or Aug 31.


Best wishes 


Meet Theo on line on the Jobseekers,  Careers Clinic and Independent Forums, where she answers jobseeking and careers queries regularly each we