Compromise Agreements for Employees: Why and How
What is a Compromise Agreement?
A Compromise Agreement is a type of settlement made between an aggrieved employee and his or her employer. In a Compromise Agreement, the employee agrees not to take a claim to an Employment Tribunal. The boss makes an offer in exchange (a sum of money).
Contractually binding
Requirements
It is important that a Compromise Agreement meets certain legal requirements (if it does not, it will be void).
It must:
- be in writing; and
- relate to the claim that is being settled.
Also, employees must receive advice from an independent advisor (a solicitor) about the terms of the agreement. In receiving such advice, the employee will understand their rights, ensure the employer does not try to enforce unfair terms, and appreciate the chances of success should the claim be brought before a Tribunal.
Independent advice is more than a good idea, it is a legal requirement, and an agreement will be void if an employee does not receive such advice or if he or she fails to identify the advisor.
It is important to check that the advisor is covered by professional indemnity insurance.
Benefits
Compromise Agreements are used to help both parties end an employee’s employment. They are often used when redundancies have to be made, and are therefore commonplace in these difficult economic times.
With a Compromise Agreement, potential dismissal claims can be settled quickly and cheaply. They help an employee avoid the risk of an unsuccessful claim at the Employment Tribunal.
Negotation and signing
Handshake
The terms of a Compromise Agreement are negotiable. If you the employee are not happy with terms that have been proposed there is the option of discussing terms that may be more appropriate. At the end of the day, it is your choice to sign or not to sign. If you do not choose to enter into such an agreement, you still have the option of taking your claim to an Employment Tribunal.
Once signed by both parties, and if made in accordance with the legal requirements, the Agreement will be legally binding.
The employee will then be paid the agreed sum as compensation. Employers are also usually responsible for paying legal expenses incurred by an employee in receiving advice about the agreement.
The whole process should be considerably faster than making a claim to a Tribunal.
Interesting points:
- When settling a claim any genuine compensation received is usually tax free up to the value of £30,000;
- If the payment is contractual, for example a payment in lieu of notice, it will be subject to tax.
If you would like to know more please feel free to use the comments form (below) or to contact Winston Solicitors direct. We will be pleased to help.
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By Claire Palmer, 15 December 2008 @ 1:58 pm
You can also now go directly to a barrister on employment work including compromise agreements, and they will do it for the fixed fee that is allowed in the compromise agreement for legal fees.
By Russell Jones, 15 December 2008 @ 4:21 pm
And so will most, if not all, solicitors, including myself. There is no prescribed amount in a compromise agreement but the ‘industry standard’ seems to be £250 plus VAT for a simple agreement and could rise from that dependant upon the complexity of agreement reached. The important thing to do is receive independent advice from a qualified lawyer who is willing to discuss matters fully and competent on the law.
By Law Chat, 15 December 2008 @ 5:57 pm
Russell, I agree with the £250 + VAT. Winston Solicitors would charge more if (for example) there is renegotiation or a particularly complex agreement.
By andrew vickers, 15 December 2008 @ 10:29 pm
I thought that technically, a claim (civil or ET) could still be pursued but the employee would be in breach of an agreement and would have to return the money recieved for signing the agreement. In other words, the CA is not binding.
By Law Chat, 19 December 2008 @ 4:47 pm
Andrew, thanks for your question: the general position is that so long as a compromise agreement complies with the relevant proceedings under s203(3) Employment Rights Act 1996 and similar discrimination provisions it is is legally binding. The fact that the agreement may make provision for repayment of it should the employee commence proceedings does not effect this. The only point to be aware of is that the agreement will only compromise those claims which are identified under the agreement.