A UK compromise agreement is a legally binding contract made between an employer and employee just prior to, or following a, termination of the employment contract. This type of agreement prevents an employee from taking legal action for a breach of their employment rights against the employer in return for a financial settlement.
Many compromise agreements are marked ‘without prejudice’ and ‘subject to contract’. Without prejudice essentially means that if you were to pull out of the agreement and take your employer to a UK Employment Tribunal, the content of the agreement cannot be exhibited before the judge. Subject to contract means that the agreement is not valid until both parties have signed a legally binding contract, which will usually provide more detail than the original agreement.
What does a compromise agreement need to contain in order to be legally binding?
s.203 Employment Rights Act (1996) provides some basic instructions as to what such an agreement needs in order to be legally binding. These are as follows:
- It must be in writing
- It should relate to an employment contract
- It should only be agreed by an employee who has sought independent legal advice
- The independent legal advisor should have professional indemnity insurance to cover any risk that may arise from the claim
- The agreement should identify the independent advisor and usually the advisor will sign to confirm that legal advice has been given
If all of these things are followed and the document is signed by both parties then the agreement will be legally binding.
What kind of details does a UK compromise agreement contain and how much money will I receive?
A compromise agreement will usually contain the following information:
- Details of the employment contract such as the position worked, start date, end date, salary etc
- Details of any outstanding salary or annual leave which needs to be paid (note this will be subject to tax and NI as normal)
- Any arranged garden leave prior to termination
- Any PILON (payments in lieu of notice) to be made
- Details of the financial incentive for the agreement
- Any agreement regarding references
- Any agreement regarding legal costs
- Any restrictive covenants regarding confidentiality
- Anti-poaching, competition or dealing clauses
- A waiver of your rights to bring a claim on the same grounds upon which the agreement was formed, in the Employment Tribunal
The amount of compensation that you receive under such an agreement will largely depend of the quality of your claim. This is something about which experienced compromise agreement solicitors can advise you further.
The first £30,000 awarded under an agreement is tax free. Additional money is also normally awarded for the insertion of clauses relating to confidentiality or competition. Usually the more flexible an employee is, the more the employer awards.
Is a compromise agreement mandatory?
No. Either side does not have to consent to signing a compromise agreement. If you do not want to sign the agreement then you are still open to make a claim to the Employment Tribunal. The time limit in bringing a claim is usually 3 months from the date of the incident/dismissal or 6 months in redundancy cases.
Getting independent legal advice on such an agreement is not simply a rubber stamping exercise. So make sure you take advice from specialist compromise agreement solicitors.