Compromise Agreements

Our experienced team at Kirwans provide advice and representation to both employers and employees, on both tribunal claims and non-contentious employment matters.

We have considerable experience in drafting and advising upon compromise agreements for all different levels of employees, including senior managers and directors.

Do call us on 0800 525035 to find out more about how we can help you with your compromise agreement requirements.


More Information on Compromise Agreements

What are they?

A compromise agreement is a legally binding agreement made between an employer and employee. It will set out the terms and conditions reached when a contract of employment is to be terminated or a dispute resolved.

Compromise agreements are commonly used upon termination of the employment relationship in situations such as redundancy, or where there are grounds for a potential dispute (e.g. settling tribunal claims).

Broadly speaking, a compromise agreement sets out the terms on which an employee will agree not to pursue a claim against the employer. The law states that an individual cannot contract out of their employment rights but there are a number of exceptions and one of them is by signing a compromise agreement.

Although the creation of the compromise agreement is a relatively new concept, they are becoming increasingly common practice for employers. This is because a compromise agreement  is a legally recognised and ‘safe’ way of terminating somebody’s employment. An agreement of this nature minimises the risk to employers of any potential claims, problems or complications in terminating employment.

Are there any minimum requirements?

For a compromise agreement to be legally binding, it must:-

• be in writing

• relate to a particular complaint that an employee has or may have

• state that the laws regulating compromise agreements have been complied with

• identify an independent adviser

• only be made where an independent advisor (e.g. a solicitor) has advised the employee on the agreement

In a compromise agreement there will usually be a host of other terms including a breakdown of payments, confidentiality clauses, EDT, tax indemnity and a long list of statutes. Such terms are not unusual.

Do I need one?

A compromise agreement is often the quickest and most cost effective way of concluding a settlement for both employers and employees.

The main benefits for an employee are:-

• a legally binding agreement that his/her employer will pay a sum of money by way of compensation for losing his/her job (potentially the first £30,000 can be tax free)

• quicker and less stressful than pursuing a claim through an Employment Tribunal

• avoids the risk of a claim being unsuccessful

For employers, the main benefits are the fact that it’s a ‘safe bet’ and provides a good degree of protection.

The law does not allow an individual to contract out of their employment rights except in certain circumstances. These circumstances are:-

• where the agreement has been reached with the help of an ACAS conciliation officer; or

• where a settlement is formally endorsed by an Employment Tribunal; or

• where the agreement is incorporated into a compromise agreement

Why am I being asked to sign a Compromise Agreement?

The main objective of a compromise agreement is to provide certainty for both parties.

It is a requirement of a compromise agreement that you receive independent legal advice from an independent adviser (e.g. a Solicitor).
 
The most important aspect to signing a compromise agreement is that by accepting its terms and conditions you effectively waive your right to make a claim against an employer in Court or an Employment Tribunal save normally for 2 types of claim in respect of accrued pension rights or personal injury.

Any wages owed, bonuses, accrued but untaken holiday must be dealt with in the terms of an agreement.

What are the legal implications in a signing a compromise agreement?

If an agreement is reached and compromise agreement signed, an employee’s right to bring a claim against their employer is excluded. There is no going back.


If you have any questions or would like to find out about how we can help you with your compromise agreement requirments do call us on 0800 525035