What is a compromise agreement?


The compromise agreement is a method by which your employer agrees to pay you a sum of money (compensation), and in return you must agree not to go to an employment tribunal.

It is a legally binding agreement that should be drawn up by a solicitor with employment law experience.

If you have been offered a compromise agreement, it is vital that you contact a solicitor to ensure that you have been offered a good deal since you will be giving up your rights to take the company to a tribunal.

What’s more, your company should legally offer you a budget to see a solicitor, so the solicitor’s fees should not be an issue for you.

If you're an employer and you need to create a compromise agreement, ensuring it is legally sound is of the utmost importance.

What's involved in a compromise agreement?

So what's the process of creating one? What are the deals?

  • The employer will often offer the employee some financial compensation for the termination of employment
  • In exchange, the employee must promise not to bring an employment claim against the employer
  • This way the employee is compensated for his/her loss, and the employer is protected from future employment claims from the employer

Note that in most circumstances your employer will be expected to pay any legal costs associated with your agreement, including the fee for the solicitor to check that your compromise agreement is an acceptable offer.

Redundancy payments you receive as part of your compromise agreement will usually be tax-free up to £30,000. Your legal representative can give you advice about other payments and benefits such as company cars or holiday pay.

Negotiating the terms of a compromise agreement

Negotiating a compromise agreement with your employer can be an effective way of obtaining the compensation you require for the termination of your employment without having to resort to litigation, which can be very expensive, stressful, and take a long time to conclude.

Provided you are aware of your rights and of the potential claims you have against your employer, you will be in a good position to negotiate the compensation you would be entitled to under law. Using an expert employment solicitor to advise you in such negotiations is recommended because you can ensure that you will have the right information and advice to achieve the best possible settlement.

As a compromise agreement is a legally binding contract between you and your employer, you must clearly understand the terms of the agreement before you sign it.

You may for instance be forbidden to talk about the details of the compromise agreement you have signed. Your legal advisor can help you understand these aspects before you sign.

If your employer has approached you with an offer of a compromise agreement, we recommend that you seek expert advice as soon as possible. Caven can put you in touch with a specialist employment law solicitor with expertise in negotiating the best deal from a compromise agreement. Please call us on 08001 221 2299 or complete the web-form above.

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