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.

 

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.

 

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 also usually be required not to make any derogatory 
comments against your employer.

 

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.