A Compromise Agreement is a commonly used method of ending a contract of employment, where an employer covers themselves against the possibility that the employee will take them to an employment tribunal. In a Compromise Agreement, a payment is agreed for the employee to end their employment on the understanding that they waive their rights to take the employer to an employment tribunal. The agreed payment made to the employee is commonly higher than the standard redundancy payment that they would be entitled to receive. Although most commonly used in redundancy situations, the agreements can also be used as a method of settling tribunal claims or in dismissal circumstances.
Compromise Agreements represent an excellent method for dispute resolution and can provide a good outcome for both the employer and employee. Upon entering into an agreement an employee loses the ability to make some claims against their former employer. It is important to note that there are certain instances where legal action can still be taken. If the employer breaches the agreement the employee may take action against them. An employee may also make claims for personal injury if the said injury was not covered within the agreement.
Employers will often include clauses within a Compromise Agreement to protect their interests. Commonly included are confidentiality clauses that cover what a former employee may discuss with others. These can include details about company operations, practices and product development. It is not uncommon for the details of the agreement itself to be covered by a confidentiality clause.
In a redundancy situation employees are often concerned by the reference that will be given from their former employer. Employers are under no legal obligation to provide a reference for an employee. Compromise Agreements can contain a reference schedule showing in detail the reference that will be provided to future employers. Employees often ask for the inclusion of such a clause within the agreement.
It is essential that any employee signing a Compromise Agreement takes independent legal advice. If an employee has not taken independent legal advice then the agreement is not considered valid. A qualified legal advisor is required to sign the agreement to attest to the fact that legal advice has been given.