What are they? I suppose the most sensible definition of a Compromise Agreement is it is a legally binding agreement for both employees and employers to an out of Court settlement. Any other Agreement which is not sanctioned through a Compromise Agreement will not be legally binding for either party. The only exception to this is an agreement that has been reached using a form called a COT 3 through the Arbitration and Conciliation Service (ACAS).

The Employment Rights Act 1996 Section 203 (3) details the requirement for a Compromise Agreement for it to be legally binding. The first essential element is that the employee must have advice from an independent legal advisor, normally a Solicitor. Without independent legal advice, the agreement is invalid. The agreement itself must relate to the matter in dispute. For example, if the employee and the employer wish to end their relationship it must relate to the termination of your employment.

In circumstances where your employer asks you to sign a Compromise Agreement, please be aware that you should obtain independent legal advice. Independent legal advice means going to a firm of Employment Specialists and obtaining their advice. Normally what happens in these circumstances is the employer will pay for that advice by an independent specialist in order for the Compromise Agreement to be completed. Therefore, it is unlikely that you as the employee would be required to pay for the lawyer to give you the advice.

I would always advise you to find your own lawyer in these circumstances. If you have any query, we of course can refer you to a lawyer in your area who can give you the necessary advice. Do not go to someone recommended by your firm, the ones asking you to sign the Compromise Agreement. The reason for this is they are less likely to be truly independent of the Company. The firm of Solicitors should not have any conflict or business with the employer.

Compromise Agreements can be very useful in ending an employment relationship, particularly where the employer wishes for reasons not connected with grounds for dismissal for ending employment relationship with an employee. If a Compromise Agreement is signed, it does not amount to a dismissal by the employer, it amounts to a neutral termination of the employment contract through agreement. Compromise Agreements are sometimes referred to as a Mutual Termination Agreement.

The Tax position in relation to Compromise Agreements is fairly complex but suffice to give some general guidance on it, you should always refer to a Tax specialist for specific advice. The Tax position is that the first £30,000.00 payment is normally free of Tax. Invariably, there will be circumstances where the employer wants to bind the employee with the Compromise Agreement. The benefits of the employer would normally include additional clauses in the agreement to cover such things as confidentiality and non-derogatory clauses (this is a clause where it is agreed that both parties make no derogatory comments about the other). Other examples include restrictive covenants being imposed on their employee for a sum of money not to reveal information about a business or solicit from particular clients etc.