If you have been offered a compromise or severance agreement to terminate your employment, it helps to know exactly what this is, and what it might mean to you. We’ve provided a brief explanation and definition below. For further information, please do not hesitate to contact us on 020 7790 2000, or complete our enquiry form. Our team of employment law solicitors are currently working with individuals across London and the surrounding areas to provide a fast, effective and efficient service on compromise agreements.
What Is A Compromise Agreement?
If you should ever enter into a dispute with your employer there are usually three main ways to settle your claim. The first is by taking your case to an Employment Tribunal. The second is by using ACAS reconciliation and the third is a private settlement formalised within a Compromise Agreement.
Reaching a settlement is usually in the best interests of both the employer and the employee, and when negotiated properly, a compromise agreement can be a very effective way to ensure that employees are adequately compensated for the termination of their employment without the need to bring a formal claim against their employer, which can be expensive, time-consuming and lead to unwelcome publicity. However, it should be noted that neither party can force each other into a Compromise Agreement, and this must be a voluntary arrangement.
If a compromise agreement is signed, this does not amount to dismissal by the employer but is simply a neutral agreement to terminate the employment contract. For this reason, Compromise Agreements are occasionally referred to as a Mutual Termination Agreement.
What Does A Compromise Agreement Cover?
A Compromise Agreement will set out the terms of the settlement between the employer and the employee. It will include a clause to prevent the issue or continuance of proceedings under one of the applicable statutes. The effect will be of a clean break between the two parties. In order for a Compromise Agreement to be legally binding, there are a number of key elements.
Although it is quite common for the employer to pay for this advice on behalf of the employee, it is a core requirement that the employee receives advice from an independent legal advisor, normally a solicitor. The adviser must have in place a relevant contract of insurance or a professional indemnity in case the advice was found to be negligent.
The agreement must state that the conditions regulating Compromise Agreements are satisfied.
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It must identify the adviser. |
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It must be in writing. |
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It must relate to the matter in dispute. A typical example would be when an employer and employee wish to end their relationship, in which case the Agreement must relate to the termination of the employee’s employment. |
At times, an employer may wish to bind the employee within the Compromise Agreement to a number of additional terms. For example, they may wish to include additional clauses covering areas such as confidentiality or non-derogatory, where it is agreed that both parties will not make derogatory comments about the other. It usually also includes a number of restrictive covenants imposed on the employee who is required not to reveal information about the business or market to particular clients or to work within a certain distance from the business.
Tax Implications
There are a number of tax implications when an employee receives financial compensation as a result of a Compromise Agreement. However, the first £30,000 is normally free of tax.
Independent Advice
It is essential that you take independent legal advice if you are offered a compromise agreement, not simply in order that it is legally binding but also to help guarantee the best outcome for you. The team at Adams is experienced at advising clients on the content of the agreement and any potential claims you may have, and will work hard on your behalf to negotiate the best compensation package available.
For further information, please do not hesitate to contact Jonathan Finebaum on 020 7790 2000, or email him on [email protected], or complete our
enquiry form.
