A Compromise Agreement is a legally binding agreement
between an employer and an employee which settles a dispute between them.
In most cases a Compromise Agreement will provide terms of settlement (usually financial)
on the termination of an employee’s contract of employment. The typical Compromise Agreement provides
that the employer pays an agreed amount of compensation to a leaving employee in return for that employee giving up all of
his or her rights to bring a claim against the employer in the Employment Tribunals.
From an employee’s perspective a Compromise Agreement provides a possibility
of securing a higher payout on leaving than he or she might otherwise be entitled to under statute or contract.
From the employer’s perspective the Compromise Agreement provides the certainty that it will not
be sued by a leaving employee after they have left.
law provides that any agreement by which an employee gives up his or her statutory employment rights must
be in a specific form and requires the employee must take advice from a ‘relevant independent adviser’ as to the
terms and effect of the agreement under which they are giving up those rights.
Therefore a simple letter stating, for example “... you hereby
accept the sum of £5,000 in full and final settlement of all claims that you may have against the company ...”
does not satisfy the relevant requirements and may not therefore provide employers with the protection
that they require.
& Co we advise both employers and employees in relation to Compromise Agreements.
For Employers: We
advise on the correct drafting of a Compromise Agreement to ensure that it is legally binding on the employee.
We also help to negotiate terms of exit in relation to leaving employees.
We advise on the terms and effect of a Compromise Agreement on you and, where appropriate, help you to negotiate the
best settlement package.