What is a Compromise Agreement and How Does It Affect You?

Compromise Agreements are made between employers and employees when employment ends. Since 1996, when such agreements became regulated, they have become more common. Often they are used when there is a dispute between the employer and the employee, but sometimes they are used simply as a means of recording what has been agreed.

The advantage of these agreements is that, if drafted correctly, they can prevent future problems between the parties and perhaps more importantly, future claims. It can set out exactly what the employee will receive as a settlement and it can be a means of allowing lump sum payments to be paid tax free. References can also be agreed as part of the agreement.

For a Compromise agreement to be binding it has to be:

• In writing;
• the compromise agreement has to relate to a claim or possible claim;
• the employee must have received advice from an independent adviser (usually a solicitor); and
• the agreement must state that the conditions regulating compromise agreements have been satisfied.

If you are faced with a compromise agreement, either you need one drawn up as an employer or you need a solicitor to go through one with you. It is important that that you take advice from a specialist employment lawyer to ensure your rights are fully protected. This area of law is constantly changing and you will need someone who is up to date with recent developments.

Our employment law specialist Stephen Foote regularly deals with these agreements and is always happy to help. You can call Stephen Foote if you require further help or information on 01934 623511 or complete our Online Enquiry Form.

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