Compromise agreements - Drafting/Negotiating

We can advise on the terms of compromise agreements and the circumstances leading to a severance deal being offered. Compromise agreements are quite a common method of bringing to an end the employment relationship following a dispute and it is a record in writing the terms of any settlement reached between you and your employee. As an employer you have the contractual guarantee that the employee is waiving their right to bring a claim against you in the Employment Tribunal, providing the Compromise Agreement is completed in accordance with the relevant legal framework.

Legal requirements

In order to be legally binding, compromise agreements must comply with the following requirements:-

  • They must be in writing;
  • They must relate to the particular complaint or particular proceedings about which there is a dispute. An employer cannot use a compromise agreement to seek to exclude all potential future claims;
  • You must have received independent legal advice from a solicitor or other appropriately qualified advisor, as to the terms and effect of the proposed agreement;
  • Your advisor must be identified in the agreement and must have in force a professional indemnity policy to cover the risk of giving negligent advice;
  • The agreement must state that the above conditions relating to compromise agreements have been satisfied.

What is generally contained in a Compromise Agreement?

The compromise agreement will set out the financial and other terms upon which the employment relationship is terminated and obviously varies with each individual, but it should be drafted to include/exclude in accordance with the particular circumstances in question and will typically cover such key matters as:-

  • Amount of settlement to be paid to the employee and when it is payable.
  • What Reference (if any) you will are willing to provide to the employee (no obligation to do so, but this often acts as an incentive for the employee to sign)
  • Confirming the employee is bound to observe confidentiality regarding the fact that they have been offered a compromise agreement;
  • Confirming any other restrictions after the employment has terminated. Eg Restrictive covenants
  • The level of contribution to the employee's legal fees which are usually provided by the employer.