A compromise agreement is a legally binding agreement which usually brings an employment relationship to an end.  It is one of the only means recognised in the law, by which an employee can legally “contract out” of their employment law rights.  As an enticement, the employer usually agrees to financially compensate the employee.  In return, the employee agrees not to pursue any legal claims against the employer.   Very often the compensation payment reflects what the employee would receive if they were to make a successful claim for unfair dismissal. 

What are the benefits of using a compromise agreement?

The compromise agreement route often results in benefits for both the employer and the employee.  The employer may have concerns about the risks to the business of a legal claim by the employee.  These risks include, costs, time expended and reputational damage. This may be the case even where the employer has followed, for example, a redundancy, capability or misconduct procedure, leading up to the dismissal.  

From the employee’s point of view, a lump sum payment is often welcome where there may be perceived irreconcilable differences in the employment relationship or where simply the parties no longer hold the same values.  The employee will not want to leave under a cloud and will be keen to preserve their reputation in the market place. 

It may be in both parties’ interests to have a clean break. 

Do I really need legal advice?

Employer’s should seek legal advice on the terms of the compromise agreement and the settlement figure. All too often employers use standard agreements, adapted in-house, which are not fit for the particular circumstances and further expose the employer to the risks set out a above.  Each situation needs to be handled carefully and is fact sensitive.  

A compromise agreement is not valid unless the employee obtains independent legal advice on the meaning of the agreement and in particular its effect on their ability to pursue their employment law rights.  The quality of legal advice received is important from the employee’s perspective. 

The employee needs to understand the implications of signing the agreement, including but not limited to, the claims that they cannot now bring against the employer, what they may disclose to any prospective future employer, whether there are any regulatory implications, the relevance of any ongoing medical issues, whether they should take advice on a personal injury or stress at work claim,  the meaning and implications of any restrictive covenants and the adequacy of the compensation payment itself and the notice pay. 

Our solution driven employment team at Benest & Syvret are experienced in and engaged with, the issues relevant to compromise agreements.  We are pleased to advise both employers and employees in this area of the law.