Bournemouth Solicitors

What is a compromise agreement?

A compromise agreement is an agreement made between an employer and employee in the event that the employee’s employment is terminated.  Although such agreements are not a pre-requisite of termination they are often used by employers to settle payments and benefits following the termination, and any other relevant issues, outside of court (employment tribunals).

If an employee accepts a compromise agreement, he waives his right to bring claims against the employer to an employment tribunal, including claims regarding unfair dismissal, unlawful deductions of pay and breaches of the employment contract.

Are compromise agreements known by anything else?

Confusingly, yes.  Other names for compromise agreements include “Severance Agreement” or “Termination Agreement”.  Some agreements may not be called anything at all!  Where you are unsure of whether you have been given a compromise agreement or not, it is best to seek legal advice.

When is a compromise agreement typically given?

Compromise agreements are used in a wide range of circumstances related to termination of employment including:

• Redundancy – although there are statutory guarantees regarding redundancy pay, employers can agree to pay higher than the minimum
• Where the employment relationship simply is not ‘working out’
• Where employees on maternity/paternity leave do not wish to return to work after taking leave
• Where an employee is unfit to continue working
• Where insufficient notice to terminate employment has been given

As a compromise agreement will result in an employee waiving some of his legal rights, they will typically be used where it is foreseeable that a dispute could go to an employment tribunal.

How much will I get from a compromise agreement?

There is no limit and in theory any amount could be agreed to.

Are payments taxable?

Under compromise agreements, any payments made are tax free up to £30,000.

Who can give independent legal advice?

Trade union officials and solicitors are usually in the best position to give advice.   The important point is person giving the advice is independent and not related to the employer in some way.

Why do I need to see a solicitor when dealing with a compromise agreement?

A compromise agreement is only legally valid where the employee is given an opportunity to seek independent legal advice regarding the agreement.   As an employee will waive some of his legal rights by agreeing to a compromise agreement, this legal requirement is put in place to ensure employees are protected and not taken advantage of.

Solicitors are also in a good position to help you negotiate a better financial package and advise you on whether to bring an unfair dismissal claim instead of accepting the agreement outright.

Do compromise agreements make provisions for legal costs?

Compromise agreements typically cover the legal costs up to a reasonable amount.  Typically, this will include the costs of advice on the agreement itself and for redrafting of the agreement if necessary.