What is a Compromise Agreement?
A Compromise Agreement is a legally binding agreement either during or following the termination of your employment, and which brings your employment to an end. It is recognised by law. It usually provides for a severance payment, in return for which you agree not to pursue any claim or grievance you may have in an Employment Tribunal.
Why am I being offered a Compromise Agreement?
A Compromise Agreement may be offered by your employer for a number of reasons, i.e. you may have an unresolved dispute with your employer, you may have raised a grievance, be medically unfit to continue working or may not want to return to work at the end of Maternity Leave.
Employers tend to offer such an agreement to ensure there is some certainty and closure in relation to the employment, as opposed to a possible tribunal claim, where the outcome can be risky.
What is contained in a Compromise Agreement?
Each agreement will vary depending on specific circumstances however there are certain matters that most agreements cover-
- amount of compensation to be paid
- confidential matters, such as trade secrets and the terms of the agreement
- any assurances given by the employer and/or employee
- settlement of any claims which the employer may have against the employee
- mutual agreement not to make derogatory comment.
Why should an employee consider signing a Compromise Agreement?
The employee generally receives an enhanced ex gratia or compensatory amount in addition to being paid any contractual amounts due
Under English Law, the Employer is usually favoured in Tribunal Claims and therefore the risk of going to Tribunal can be high
There are generally no legal costs recoverable from the Opponent even if you are successful at Tribunal.
The employee will generally not be required to work his or her notice period, and will be paid all sums, including contractual notice and ex gratia amount (tax free if under £30,000) upfront
What are the risks of signing a Compromise Agreement?
- You may be agreeing to terminate your employment for a much lower amount of compensation than you would be entitled to if you were successful at Tribunal
- You may be required to enter into new contractual terms which will affect your ability to work in the future, such as new post-termination restrictions;
- You may be signing away important contractual benefits such as your right to Permanent Health Insurance or a final salary pension.
References as part of the Compromise Agreement
When negotiating a compromise agreement you can agree the content of the reference your employer will give to potential future employers.
Some employers will limit the reference to providing some basic facts of employment, such as the job title, start date, termination date. However, you can negotiate with your employers to provide a more detailed reference as part of the Compromise Agreement.
What are the requirements for a valid Compromise Agreement?
The following requirements must be met in order for the document to be valid –
- it must be in writing
- it must identify the adviser
- the adviser must carry professional indemnity insurance
- the employee must receive legal advice from a qualified independent adviser, which includes a compromise agreement solicitor, regarding the terms of the proposed agreement as well as its effect on the employee’s ability to make a complaint to an Employment Tribunal
Why do I need a Compromise Agreement Solicitor?
The main reason for instructing a Solicitor is because you must receive legal advice in order for the compromise agreement to be valid. The solicitor must sign the agreement to certify that the advice has been given.
A compromise agreement solicitor will explain the contents of the agreement to you in plain English, and make sure that you fully understand the meaning of each term.
A solicitor can also assist in negotiating the new terms if you are dissatisfied with any part of the agreement. However, once you sign the agreement, it is final, and you no longer have a right to make a claim to a tribunal.
A compromise agreement solicitor will advise you on whether the agreement offers you suitable protection and whether the amount of compensation being offered is adequate.
One way a solicitor can assist you is to help you identify any potential claims you may have against your employer, such as discrimination or unfair dismissal. A solicitor can assess the likely value of such claims in order to determine whether signing or pursuing a legal claim is likely to be more beneficial.
Who pays for my legal advice?
There is no legal requirement for an employer to pay your legal fees in taking advice on a compromise agreement however in practice employers will normally make a contribution towards some or all of your legal costs if you sign off on the Agreement.
What if my employer does not pay me?
If your employer does not comply with the terms of the compromise agreement, you can make a claim for breach of contract, if you have suffered loss as a result of the breach.
Our team of experts can assist with your all aspects of your employment matter. Call us now on 02031918080 or email Kalilou@hardingmitchell.co.uk