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COMPROMISE AGREEMENT SOLICITOR UK

What is a compromise agreement?

After a termination of employment for whatever reason, a compromise agreement is one option for settling any possible legal claims by an employee against an employer. With a compromise agreement, the terminated employee and their former employer enter into a legally binding agreement in which the employee gives up their right to bring a claim before an Employment Tribunal in return for a specified amount of severance pay.

What is contained in a compromise agreement?

The precise wording and content of a compromise agreement will vary some from employer to employer, but all compromise agreements cover the same basic issues:

• the particulars of the payment to be made to the employee
• how the compensation will be treated for tax purposes, including a tax indemnity clause
• assurances made by both parties, including promises to keep certain information confidential as well as promises not to make derogatory remarks about one another
• a statement that the agreement represents a full and final settlement of any claims arising out of the employment and/or termination
• a list of statutes under which the employee is agreeing not make a claim
• restrictions, if any, on the employee’s future employment
• the reference that will be provided by the employer

What is required for a valid compromise agreement

In order for a compromise agreement to be valid, it must be in writing. It must also relate to a specific legal claim that the employee has or may have against the employer. The content of the agreement must include the name of the adviser consulted by the employee as well as a statement that all of the statutory requirements for a valid agreement have been met.

A compromise agreement is not valid unless the employee obtains legal advice from a qualified adviser before entering into it. Under The Employment Rights (Dispute Resolution) Act 1998, there are three types of people who can give the requisite advice: a qualified solicitor, trade union official or advice centre worker.

How will I benefit from a compromise agreement?

A compromise agreement is a way to make a clean break when an employment relationship ends. Both parties know what to expect as a result of the termination. Rather than gambling on a legal claim with an Employment Tribunal, the employee will receive a guaranteed amount of compensation. The employer, for their part, gets peace of mind, knowing that no legal claims will be brought against them.

Does am employee have to sign the compromise agreement

No. An employee is not obligated to sign the agreement. If they so choose, the employee is free to reject the agreement and preserve their right to bring a legal claim to an Employment Tribunal.

Should an employee consult with a solicitor?

In addition to the fact that legal advice is a statutory requirement for a valid compromise agreement, a solicitor will provide am employee with assistance by advising you on:

• the meaning of the legal jargon contained in the agreement
• whether the terms of the agreement adequately protect your rights
• whether the amount of compensation being offered is sufficient given the circumstances
• whether the agreement is reasonable overall
• what, if any, viable legal claims you may have against your employer
• renegotiating the terms of the agreement

How much does it all cost

Typically, the employer covers the costs associated with the employee obtaining the required legal advice. The majority of the time, then, the employee will pay nothing.

When will the employee receive the compensation?

Generally, payment will be made within 7 to 14 days after the agreement has been signed by all of the parties. A specific date will usually be noted within the terms of the agreement.

Are there any taxes on the compensation?

Whether or not the compensation will be subject to any taxes depends upon the amount of money involved. There are no taxes on the first £30,000 of compensation. If more than £30,000 is paid, the excess is subject to taxation in the hands of the employee in the normal way.