COMPROMISE AGREEMENT LAW

A compromise agreement is a legally binding document which represents an agreement between an employee and an employer related to the employee’s termination. In a compromise agreement, the employee agrees to give up their right to pursue any legal claim against the employer. The employer, in turn, agrees to pay the employee a specified amount of severance pay.

Compromise agreements were first introduced in the Trade Union Reform and Employment Rights Act in 1993. They are the only way that an employee can contract out of their employment rights and the only way that an employer can be completely sure that a former employee will not bring a claim.

No two compromise agreements are exactly alike. They will all vary according to the circumstances of the employment relationship being addressed. There are, however, key terms contained within virtually all compromise agreements. Of course, one of the most important issues is how much compensation will be paid to the employee. Other matters affecting the employee that are likely to be included are restrictions on future employment, confidentiality requirements and an agreement not to make negative statements about the employer.

Also, compromise agreements typically contain assurances given by the employee and employer, the reference the employer will give on behalf of the employee and the settlement of any claims the employer has against the employee.

In order to be valid and binding, a compromise agreement must meet certain statutorily-defined requirements. First, it must be in writing, and it must relate to a specific complaint the employee holds. Also, a compromise agreement is only valid if the employee received legal advice from a qualified adviser before signing the agreement. The adviser, who must be identified in the agreement, must carry professional indemnity insurance. Last, the agreement must contain a statement declaring that all of the legal requirements have been met.

The main goal of a compromise agreement is to provide both parties with certainty and finality. A compromise agreement guarantees the employee a specific amount of severance pay. In return, the employee promises not to bring any legal claims against the employer. It is a clean break that provides closure for the employee and the employer alike.

The employee is not required to sign the compromise agreement. By not signing, the employee retains their right to bring a legal claim against the employer to the Employment Tribunal.

It is standard for the employer to pay for the employee to obtain the requisite legal advice.

The terms of the compromise agreement will specify the payment date, which is typically within 7 or 14 days of the agreement being signed.

The amount of severance pay received will determine whether or not you have to pay any taxes. The first £30,000 of compensation is not taxed, but any amount exceeding £30,000 is taxed the normal way.

A qualified solicitor is one choice the employee has when selecting an adviser. The benefits of working with a solicitor include their full and complete understanding of all the legalese stuffed into compromise agreements. Solicitors also have experience with the various employment claims which may be available to you. They can advise you on whether any of those claims are worth pursuing instead of signing the agreement.

In many cases, signing the compromise agreement will be the employee’s most beneficial option. Because of the finality of these agreements, however, it is always wise to receive advice from a qualified solicitor as to the suitability of the terms.

Our solicitors are experts in their field and where possible they negotiate settlement failing which they will make application to an Employment Tribunal to resolve any dispute. They operate the no win no fee scheme for claims dealt with by the Employment Tribunal and make no charge whatsoever if the claim is lost. If you would like to discuss your situation with a specialist employment lawyer just use the helpline or complete and send the contact form.