Compromise Agreement

Compromise Agreements

Where trust and confidence has broken down between an employer and an employee it is usually best for all concerned to explore ways of reaching an agreement to settle differences without  the cost expense and stress of going to an Employment Tribunal or for the employee to remain in post whilst not committed at best.

This is where a Compromise Agreement may be useful. It is designed to draw a line under the employment and safeguard the employer from claims arising out of the employment or its termination. In return, usually, the employee receives an extra payment, over and above notice pay and other contractual entitlements.

In signing a compromise agreement, the employee agrees to give up all rights to make a claim against the employer  by contract, statute or at common law except in relation to rights that have already arisen under contract e.g. for holiday pay, accrued pay. In short, there is no going back “for more”. It is not possible for the employee to contract out of accrued pension rights and any personal injury claims.

Amongst other requirements, for a Compromise Agreements to be legally valid and  effective for its purpose the employee must have been advised by an independent solicitor to certify that the contents and the implications of the Compromise Agreements have been explained to the employee. It is generally standard for employers to contribute to the employee’s legal costs, usually in the region of £250.00 -£300.00 plus VAT.

Common clauses in Compromise Agreements are :-

  • The reason for and date of termination – It is usually important that a reason is given because of what may be said to a prospective future employer
  • The sums that will be paid to the employee and when – It is usually possible to ensure that, apart from any element for pay in lieu of notice and contractual rights, ex gratia compensation up to £30,000 can be paid tax free.
  • The main provisions by which employee gives up rights –clauses whereby the employee formally waives a long list of possible claims. Listing the claims is vital to ensure the agreement complies with statutory requirements
  • Conditions regarding breach of the Agreement –There is generally a clause whereby the ex gratia amount must be refunded if the employee starts proceedings or breaks any term of the agreement.
  • Confidentiality – It is important to the employer that an employee should keep the terms of the agreement confidential
  • Reference – As the employee cannot legally insist on a reference, it is common for employees to seek to negotiate a reference as part of a compromise agreement. Employers always need to be careful as to the exact terms of a reference
  • Return of employer’s property – generally  this refers to equipment such as laptops, mobile phones or other hardware but it can also apply to software and paperwork such as client lists and data, which are important both to protect the employer’s intellectual property but also to comply with Data Protection law.

FAQs about:
Compromise Agreement

Compromise Agreement FAQs - Employment solicitors Watford

Why should I use a compromise agreement ?

Compromise agreements are used in Watford where the employer wishes to terminate an employee's employment and also where the employee has a possible legal claim against the employer.  They are commonly used for :

  • Redundancies

  • Employees who leave the organisation due to unresolved workplace issues

  • Employees who are not well enough to work

  • Employees who have decided not to return to work following maternity leave

There are many benefits of compromise agreements, including:

  • Certainty – a compromise agreement creates a clean break in the employment relationship and both parties can move on without issue.

  • Saved money and time – legal disputes can be expensive and time consuming, especially given the fact that employers cannot claim back their legal costs irrespective of whether the employer wins.

How can I make sure the employee does not disclose the content of the agreement to others ?

You can ask the employee to sign a confidentiality clause as part of the compromise agreement.  There are two broad possibilities for the way the confidentiality agreement can be drafted, or adopt a "belt and braces" approach by incorporating both

  • Existence – you could ask the employee to not reveal the existence of the agreement to anyone bar close family members.

  • Content – you could ask the employee to not disclose the content of the agreement to anyone.

What claims will Watford Solicitors ensure that the employee waives ?

The vast majority of employment law related claims will be waived.  Employers cannot, however, force employees to waive their right to:

  • Pursue personal injury related claims

  • Pursue claims under the Equality Act 2010

How much should I offer in the compromise agreement ?

The package you should offer is not set in stone.  Watfpord compromise agreement solicitors can advise you on the lower and upper amounts generally offered in the circumstances applicable to you.  However, you should bear in mind that to sufficiently induce the employee to accept the offer, you should offer more than required by statutory standards, such as statutory redundancy pay, for example.

What should I advise my employee to do upon receipt of a compromise agreement ?

You should advise the employee to seek independent legal advice, as without legal advice the agreement will be considered null and void by law.  Independent legal advice can come from anyone not connected to your business in any way, which could include:

  • Registered Trade Union officers

  • Solicitors

  • Advice centre workers (such as the Citizen's Advice Bureau)

Will I have to pay for my employee's legal costs ?

Whilst there is no law requiring you to pay for your employee's legal costs, it is commonplace for employers to do so.  As a rough idea, the usual contribution by employers is around £250.00 plus VAT, whioch usually covers the employee's costs.

Please contact Watford employment lawyers for further cost effective assistance with compromise agreements.

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