Compromise agreement

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What is a compromise agreement?

A compromise agreement is an increasingly popular feature of employment law; a binding contract that may be entered into following the termination of a contract of employment. They are most commonly used to prevent claims being presented to an Employment Tribunal by the employee. In return, the employee often receives a severance payment.

Our solicitors in Leicester have seen compromise agreements become increasingly popular as the economic climate has caused a rise in redundancies.

Compromise agreements are recognised by statute and are the only way a claim can be legally binding under current employment law without Tribunal proceedings having been initiated.

There are various requirements necessary for the agreement to be binding;

The agreement must be in writing;
The particular complaint raised by the employee must be identified;
You must receive independent legal advice, such as from one of our Leicester solicitors, on the terms and effect of the proposed agreement;
The Advisor must have a current contract of employer’s liability insurance;
The Advisor must be identified;
The Advisor must also sign the agreement and certify that the appropriate advice has been given.

Each compromise agreement is tailored to the individual employee’s needs. However, there are some key features that are to be found in a compromise agreement.

Key Features of a Compromise Agreement

The compromise agreement will usually include the details of the sum of money to be awarded as a result of the termination. This will usually be paid tax-free up to £30,000.00, but you will have to give a tax indemnity to your employer.

You may find a confidentiality clause is placed in the agreement by our employment law solicitors, in relation to trade secrets of the business, as well as the details of the agreement itself. It may also included restrictive covenants which restrict the actions of the employee post-termination, such as to prevent them from poaching fellow employees.

As it is a requirement that legal advice is taken, it is common for the employer to make a contribution towards the legal fees incurred. However, there is no legal requirement to do so – you can ask our Leicester solicitors for more information on this point, if it is particularly important to your proceedings.

Finally, an employee is under no obligation to sign a compromise agreement and, in not doing so, the employee is entitled, under current employment law, to bring their claim to a tribunal (within 3 months of the termination date). In redundancy situations, if the employee was not to sign the agreement, they could risk only receiving the minimum package available, as opposed to the enhanced package being offered in the agreement.

Once having received legal advice and ensuring you are happy with the agreement, compensation will usually be paid within 7-14 days of signing the agreement; alternatively, some businesses may make the payment on their next payroll.