Compromise Agreements


What is a Compromise Agreement?

A Compromise Agreement is an agreement between an employer and employee (or ex-employee) to compromise an employee's contractual and statutory claims on termination of employment, therefore preventing a claim proceeding to an employment tribunal hearing.


The agreement complies with the legal requirements for an employee to have independent legal advice regarding the details of their compromise agreement.


The agreement usually provides for a severance payment by your employer, in return for which you warrant not to pursue any claim you may have to 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".


The compromise agreement must relate to the particular complaint and cannot settle claims that have not yet arisen.

What clauses may be found in a Compromise Agreement?

Below is an example of some clauses that may be found in a compromise agreement:

  • termination date


  • garden leave until termination


  • payment of salary until termination date


  • payment of any outstanding expenses or loans


  • payment in lieu of any accrued but unused holiday entitlement (or repayment of any holiday taken in excess of entitlement)


  • Continuation of specified benefits after termination


  • Resignation from all directorships, offices, trusteeships or other appointments held because of employment by the employer


  • Compensation for loss of employment


  • The tax treatment of the compensation payment, and possibility an indemnity


  • The treatment of any rights under employee share schemes


  • Any pension enhancement rights given in relation to pension scheme


  • Waiver of claims by the employee


  • Compromise of statutory claims, or staged termination payments


  • Any conditions to which the compensation or continuation of benefits are subject


  • Confidentiality of terms and existence of the severance agreement


  • Confidentiality of terms and existence of the severance agreement


  • Confidentiality of the employer's information


  • Re-assertion or modification of existing restrictive covenants or confidentiality obligations


  • Payment in respect of the restrictive covenants or confidentiality obligations


  • Agreement on press releases


  • No derogatory comments


  • Warranty that the employee does not have an existing job offer


  • Return of the employer's property


  • Any sale to the employee of property belonging to the employer e.g. their car, laptop, mobile phone etc


  • Sale or transfer of any shares held by the employee in (or on behalf of) the employer or any parent, including both shares held beneficially and those held in a nominal capacity because of the employment


  • Reference


  • Outplacement training


  • Payment of contribution to legal fees - usually £250 plus VAT as a minimum in straightforward agreements


Do I need legal advice?

In order for the Agreement to be binding, you must seek legal advice.


It should not cost you anything, as your employer usually pays your legal fees, or at the very least, contributes towards them.

 

Contact

Judith Ellery Head of Employment

 

Angelina Rigby Partner

 

Bethan Southcombe Solicitor

 

 

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This article summarises the law on issues which we believe may be of interest to your business. It is not a comprehensive review of the subjects and accordingly is published without responsibility for loss occasioned to any person(s) acting or refraining from action as a result of information published. This document is provided for information only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.