Compromise Agreement - all you need to know. 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.
You will need to find a good employment solicitor to negotiate you the best result with your Compromise Agreement. A good solicitor will get you the best terms and most money. We have web page to help you select employment solicitors.
If you want to know more then see our what is a compromise agreement page.
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.