Compromise agreement advice

If your employer has offered you a Compromise Agreement to terminate your employment, you will need legal advice before signing.

At Direct 2 Lawyers qualified solicitors regularly advise clients on Compromise Agreements. In the majority of cases, our fees are paid in full by the employer. We offer a turnaround service wherever you are in the UK.

If you already know what a compromise agreement is and need immediate advice from independent specialist employment solicitors, contact Direct 2 Lawyers either by telephoning us or requesting a call back.

Our list of Frequently Asked Questions about Compromise Agreements

What is a compromise agreement?
A ‘compromise agreement’ is a legally binding agreement following the termination of your employment. It usually provides for a severance payment by your employer, in return for which you agree not to pursue any claim you may have to an employment tribunal. Quite often, the compromise agreement will also deal with the notice element in your contract of employment and may provide for a “payment in lieu”.

Employers are now increasingly using compromise agreements as a mechanism for preventing possible future complaints to a tribunal, especially in redundancy situations.

Compromise agreements are recognised by statute and are the only way a claim can be legally binding without tribunal proceedings having been initiated.

You must have the compromise agreement explained by an independent solicitor before the agreement becomes binding.

The solicitor giving the advice must also sign the agreement and certify that the appropriate advice has been given.

A ‘compromise agreement’ is a legally binding agreement following the termination of your employment. It usually provides for a severance payment by your employer, in return for which you agree not to pursue any claim you may have to an employment tribunal. Quite often, the compromise agreement will also deal with the notice element in your contract of employment and may provide for a “payment in lieu”.

Employers are now increasingly using compromise agreements as a mechanism for preventing possible future complaints to a tribunal, especially in redundancy situations.

Compromise agreements are recognised by statute and are the only way a claim can be legally binding without tribunal proceedings having been initiated.

You must have the compromise agreement explained by an independent solicitor before the agreement becomes binding.

The solicitor giving the advice must also sign the agreement and certify that the appropriate advice has been given.

Why is a Compromise Agreement Necessary?

The use of compromise agreements in redundancy situations is a relatively recent development and has been initiated mainly by employers who want to prevent employees complaining to a tribunal after they have been made redundant.

If an employer does not comply with the law in making redundancies (perhaps through failing to consult properly, failing to use fair selection criteria etc) an employee can complain to a tribunal that the redundancy was unfair. This can be done after the redundancy and could result in an award of compensation or even reinstatement.

The only way an employer can be sure that an employee will not complain to a tribunal after redundancy is to persuade them to sign away their right to do so. This can be done in a compromise agreement and has the effect of turning the redundancy package into a “full and final” settlement of any claims the employee has against the employer.

Compromise agreements are also commonly used in employment situations other than redundancies and have the same “full and final” effect.

What terms does a Compromise Agreement have to contain?

The compromise agreement will state the full breakdown of the payments you are receiving and the extent to which the sums will be paid free of tax. Usually, up to £30,000 compensation can be paid without deduction, but you will have to give tax indemnity to your employer within the agreement. This is entirely usual. The compromise agreement will also provide for confidentiality both in terms of your employers trade secrets and business affairs and also of the terms of the agreement. You will be paid a small additional sum for agreeing to this-usually a few hundred pounds. You will also usually be required not to make any derogatory comments against your employer. Some employees prefer such agreements to be mutual, and employers are often receptive to such request.

The compromise agreement may confirm the existing post-termination restrictive covenants that you are already bound by under your contract of employment. In some cases, the covenants are new, having appeared in the compromise agreement for the first time. In either case, you need to take specific advice on this as your ability to work for a competitor and/or service old clients and customers could be hampered after you leave. There will be a long list of statutes in the compromise agreement (such as the Race Discrimination Act, Sex Discrimination Act, Employment Rights Act) and many more, under which you will agree not to bring a claim. You should not be concerned by this. The compromise agreement is intended to be in full and final settlement of all claims but the employer needs to list these to be able to enforce the agreement.

What terms does a Compromise Agreement have to contain? The compromise agreement will state the full breakdown of the payments you are receiving and the extent to which the sums will be paid free of tax. Usually, up to £30,000 compensation can be paid without deduction, but you will have to give tax indemnity to your employer within the agreement. This is entirely usual. The compromise agreement will also provide for confidentiality both in terms of your employers trade secrets and business affairs and also of the terms of the agreement. You will be paid a small additional sum for agreeing to this-usually a few hundred pounds. You will also usually be required not to make any derogatory comments against your employer. Some employees prefer such agreements to be mutual, and employers are often receptive to such request. The compromise agreement may confirm the existing post-termination restrictive covenants that you are already bound by under your contract of employment. In some cases, the covenants are new, having appeared in the compromise agreement for the first time. In either case, you need to take specific advice on this as your ability to work for a competitor and/or service old clients and customers could be hampered after you leave. There will be a long list of statutes in the compromise agreement (such as the Race Discrimination Act, Sex Discrimination Act, Employment Rights Act) and many more, under which you will agree not to bring a claim. You should not be concerned by this. The compromise agreement is intended to be in full and final settlement of all claims but the employer needs to list these to be able to enforce the agreement.

Why do I need a solicitor?

Compromise agreements can be written in very legalistic language and can refer to sections of Acts and Regulations which you may never have heard of. Because of this and because it is important that you understand the effect of the agreement, it is a legal requirement that you get professional advice on what the agreement means. It is also a legal requirement that your adviser signs the agreement to confirm that advice has been given.

According to the Employment Rights (Dispute Resolution) Act 1998, that advice can only be given by a qualified lawyer, a qualified trade union official, or a qualified advice centre worker, all of whom must be covered by an appropriate certificate of indemnity insurance. A solicitor will advise you if the terms offer you the correct protection and should also advise you if you are being offered a suitable amount of compensation. The number of years you have worked, your salary, job title, and most important of all, the reason for the termination are all important factors.

How much will it cost me to seek legal advice?

It should cost you nothing to advise you in relation to the compromise agreement, including any amendments to the compromise agreement wording. This is because your employer will usually foot the bill and pay us direct.

We guarantee you will not be charged more than the amount of legal fees which your employer will agree to contribute. Such amount is normally set out in the compromise agreement.

If you wish to reject the amount being offered, please click here.

We can advise you wherever you are in the UK. We do not need to see you.

What happens if I am not happy with the agreement?

There is no legal or other obligation on you to sign a compromise agreement if you are not happy with it.

At its simplest, refusing to sign means that there is no agreement between you and your employer, and you are free to make a claim to the employment tribunal (which must be within 3 months of your termination date). In redundancy cases, however, this could mean that your employer would refuse to pay you the full enhanced package and will instead pay the minimum state entitlement. In non-redundancy cases, what you are putting in jeopardy is the ex-gratia payment being offered.

Many compromise agreements are, however, capable of being negotiated upwards. In some cases, a tribunal claim may be necessary.

If you wish to reject the compromise agreement and bring a claim against your employer, we are prepared to consider a no win-no fee funding option. This means if we do not recover a sum that you are happy with, you do not pay us. Your payment is contingent on us negotiating a settlement or winning an award at tribunal and will be expressed as a percentage of actual sums received from your employer. This is known as a ‘contingency fee’ form of funding.

Do you need to see me to advise on a compromise agreement?
We can advise wherever you are in the UK. We do not need to see you.

When will I receive the amount due under the agreement?

Once a compromise agreement has been signed by all parties, any agreed compensation will usually be paid in a within 7 or 14 days. Sometimes, it goes through in the next company pay run. The payment date will be specified in the agreement.

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