What is a Compromise Agreement?

A Compromise Agreement is a legally binding agreement which is often used at the termination of a significant period of employment. In this context such an agreement typically provides for a severance payment by the employer, in return for which the employee promises not to pursue any claim in an Employment Tribunal or even the Courts. Quite often, a Compromise Agreement will also deal with the notice element in the contract of employment and may provide for a "payment in lieu".

Employees leaving - a must have

When an employee involuntarily "leaves" his employer, the well advised employer will want the departing employee to sign what is called a Compromise Agreement. The employer will often volunteer to pay for the employee to see a solicitor so that the solicitor can advise him or her and "sign off" the document outlining the terms. The employer does not agree to do this out of generosity . This is often done to ensure compliance with the code of conduct prescribed by the ERA ( The Employment Rights Act of 1996) Once the solicitor has signed and dated the Compromise document, then the employee cannot change his mind later and bring a claim against the employer. At Just Lawyers we will never be "bought" at the promise of our Fees being guaranteed If we strongly believe that an employee - or an employer - should not sign away his rights. If the terms are fair and the agreement is valid it is a policy of law to avoid prolonged litigation but there may be cases where we recommend that legal proceedings are started by the employee for the express purpose of having the Compromise Agreement "stamped" by the Tribunal or Court

Legal Complexities

Compromise agreements should not be undertaken lightly and Just Lawyers we focus on the two main technical aspects first precisely defining what claims have been compromised and second the taxation position. The document will often provide for a payment which hopefully will be within the £30,000 tax exemption for payments made on the termination of employment. This is not guaranteed and the Revenue ( HMRC ) always approach these agreements carefully. Employer or Employee let Just Lawyers ensure the tax position is correctly handled and the HMRC do not come back later to say the employer should have deducted tax and national insurance on the monies paid over. We always consult the Revenue at their specific pages on this area. If you agree that this area of law can be daunting Contact Us

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