Compromise Agreement

A compromise agreement is a legally enforceable agreement between you and the employer. A compromise agreement occurs after the termination of your employment. Normally, the compromise agreement will provide a severance payment by your employer, for which you will agree not to pursue any litigation in 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".

Compromise agreements are recognised by statute and are the only way a claim can be legally binding without tribunal proceedings having been initiated. Before the compromise agreement can become effective, the compromise agreement must be explained to you by an independent solicitor. The solicitor giving the advice must also sign the agreement and certify that the appropriate advice has been given.

Why have compromise agreements? Compromise agreements are a very useful tool in preventing the wastage of thousands of pounds in litigation. Compromise agreements save time by avoiding litigation. Possibly the most important reason is that a compromise agreement is a win-win result to a potentially acrimonious outcome. Employers are now increasingly using compromise agreements as a mechanism for preventing possible future complaints to a tribunal, especially in redundancy situations.

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.

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. In the compromise agreement, you will have to agree to not 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.
 

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