What is a Compromise Agreement?

Before 29 July 2013 settlement agreements were know as compromise agreements.

A compromise/settlement agreement is when the employer and employee mutually agree to bring the contract of employment to an end. Within the agreement there will normally be a provision which removes the rights of the employee to bring any form of legal action against his or her employer.  In exchange for giving up the right to make a claim there will often be a pay out made to the employee.

What payment can be expected?

The type of payment that the employee can be expected to receive will obviously depend upon the salary that he or she is receives.  However they will often find certain number of standard clauses these are:

Outstanding salary & holiday pay: The compromise agreement will inform the employee of when the contract will terminate. As such they will be paid up until the date of termination. They will also be paid any holiday pay which they have yet to take.

Ex Gracia Payment: This clause will explain the payment that they are to receive in compensation for the loss of employment and the loss of rights that they are signing away.  This will often include the amount of notice pay they are losing out on but on top of that will normally be a few months more pay depending on their desire to end things amicably. (For example if you have 2 months notice in your contract they might offer you 4 months payment, 2 of which to cover your notice and 2 as an extra perk). The payment is tax free up to £30,000

Other Clauses

Tax Indemnity: Although the ex-gracia payment is tax free, the employee will normally have to indemnify the employer in respect of any other tax that may be payable. So they will be made to pay the tax if the employer is suddenly hit with another tax bill surrounding the compromise agreement.

Waiver of claims: As mentioned above the compromise agreement will require the employee to sign away any rights that they have to bring a claim against their employer.

Confidential information:  Although not in every compromise agreement, there might be a clause which requires the employee to keep any information which they have come into contact with during their employment confidential.  Employees are also often required to keep the existence of the compromise agreement and the terms within it confidential.

Why do you need us?

To complete a compromise agreement you need to have it independently verified by a solicitor. Our solicitors are able to do this for you at no cost to you. This is because the employer normally has to pay all legal expenses that are accrued in the handling of the compromise agreement. So if you have been offered a compromise agreement and wish to accept it then please do not hesitate to contact us on 0800 756 6605 where one of our team members will be able to talk you through what happens next.