Common Questions about Compromise Agreements

Common Questions about Compromise Agreements

As a firm we are regularly asked by employees and employers about Compromise Agreements.  Here are some of the main issues ;

What is a Compromise Agreement?
A Compromise Agreement is a contract between an employer and employee entered into on the termination of an employee’s employment.  The Agreement normally provides for a ex-gratia payment to be made to an employee in exchange for certain obligations, primarily to not bring a claim against the employer after the employment has ended.

Is a Compromise Agreement mandatory?
No.  An employer who is confident that they have dismissed for a fair reason and with a fair procedure may consider such a step unnecessary.  Some employers however prefer the certainty (and sometimes cost effectiveness) that a Compromise Agreement may provide.

How is the payment to the employee calculated?
There are usually a number of factors taken into account by the employer and their advisers;

•    An employee’s contractual entitlements
•    The potential value of any claims that the employee may have against the employer
•    The prospects of such claims being successful
•    The benefit to the employee of a prompt lump sum settlement
•    The benefit to the employer of an early settlement without risk of litigation

Aren’t Compromise Agreements merely a mechanism for an employer to avoid paying what is due to the employee?
No.  It is a requirement of a Compromise Agreement that an employee takes independent legal advice and that adviser should make sure that the employee is aware of their contractual entitlements, the claims they may have and whether the sum offered is a reasonable settlement of those.

Who pays for the employee’s legal fees?
Strictly speaking there is not an obligation on an employer to pay for the employee’s legal advice.  Having said this, given the obligation for an employee to take independent legal advice for the Agreement to be binding it is the norm for the employer to at least make a contribution to legal fees.

Can the terms of the Agreement remain confidential?
Clearly this is an important objective for an employer so as not to prejudice negotiations with different employees.  Normally the Agreement will incorporate a confidentiality term, and, to protect against any comments made by the employer prior to signing the Agreement, a warranty from the employee that he/she has not discussed this matter with anybody else beforehand.

How can Hand Morgan & Owen help?
We advise and assist on Compromise Agreements on a regular basis.  We can advise employers on the merits of a Compromise Agreement, a suitable financial package and the preparation of the Agreement.

We frequently provide independent legal advice to employees and are flexible on the provision of advice which can often be given at very short notice and on site if required.

For advice and assistance in respect of Compromise Agreements or other employment matters please contact Patrick Nelson, Associate on 01785 211411

12 February 2011


The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances. (50587)