Compromise Agreements

These are legally binding agreements on both employees and employers containing the terms of an out-of-Court settlement. Any other Agreement which does not contain the essential elements that make it a Compromise Agreement will not be legally binding on either party.
 
The essential elements are:
1. The employee must have advice from an independent legal adviser, normally a Solicitor. Without independent legal advice, the agreement is invalid.
2. The agreement itself must relate to the matter in dispute. Usually, this is the fact that the employer wishes to bring to an end the employee’s contract of employment. The agreement must state this, although a reason for the termination of employment does not have to be given.
3. The Agreement must be signed by both the employee and employer, and normally the solicitor who has advised the employee signs the agreement as well.

The employer will usually pay the legal fees for the employee to obtain advice regarding the compromise agreement. Therefore, it is unlikely that the employee would be required to pay for the Solicitor to provide the advice.

If a Compromise Agreement is signed, it does not amount to a dismissal by the employer. Instead, it amounts to a neutral termination of the employment contract through agreement. It is usual that the Agreement will specify that, by signing it, the employee gives up any right he has to pursue a claim regarding the circumstances of his or her dismissal, such as for unfair dismissal or discrimination of some kind, either at the Employment Tribunal or in court.

In return, payment of a lump sum is usually made by the employer to the employee. This figure is usually made up of the sums due to the employee under the contract, such as payment in lieu of notice or redundancy, with an additional sum to reflect the fact that the employee is giving up the right to take matters further against the employer.

In giving advice about the Agreement, the Solicitor would usually made an assessment of what the prospects of the employee successfully pursuing matters against the employer would be, should the employer wish to go down that route rather than sign the Agreement. There are strict timescales about how long the employee has to bring a claim.

The Tax position in relation to Compromise Agreements is fairly complex but, in general, the first £30,000.00 payment is normally free of Tax.
The Employer usually will also ask the employer to agree that the terms of the Agreement remain confidential, and sometimes will also wish the employer to agree to restrictions on where he or she will work after the employment has ended. This is called a Restrictive Covenant. The advice given by the Solicitor would include an explanation of what conditions this will impose on the employee, and for how long.

The Glasgow Law Practice acts for both employees and employers in providing advising on Compromise Agreements. We are also able to provide Compromise Agreements tailored to suit the particular circumstances of the employer and employee.

We offer fixed rate packages so you know exactly how much you will pay at the outset. For more information fill out our online enquiry form or contact us on 0845 270 1858.