Monday, 20 June 2011

What is a compromise agreement?

It is regrettable that we are now living in a climate where we are seeing an increase in ‘forced’ terminations of employment  contracts.  Many employers, particularly in the public sector, are looking to reduce staffing levels and to facilitate the termination through compromise agreements.

The concept of a compromise agreement was created in 1993.  It is a document that records an employee’s agreement not to pursue an employment related claim, such as unfair dismissal or breach of contract. The agreement is usually in exchange for a sum of money.

In law the agreement will only be valid if certain conditions are met and in all cases if you are being required to sign a compromise agreement your employer should send you, along with the  draft agreement, to an independent solicitor  for advice.

So why is it so important to seek independent advice?

At MJP when we are instructed to provide advice we run through an established check list to make sure that the agreement you are being required to sign is valid and more importantly fair. 

We will check whether:

the sum offered to you represents a fair compromise

the reason given for termination has any bearing on you income protection scheme if you have one

your contractual entitlements will be protected until the termination comes into effect

you have as part of the compromise received compensation for accrued holiday, notice, and other contractual benefits

 the treatment and timing  of the payment is structured in a way to mitigate your tax liability

there will be help in finding alternative work with the production of a pre-written reference

the restrictive covenants are fair

Who pays for this?

The practice is that the Employer will pay a contribution towards the cost which is in the majority of cases will cover the solicitor’s fee.  In the main therefore it will cost nothing to seek advice.

If you wish to know more or to arrange a FREE consultation with us please call David Pett on 01603877000 or email him at

Posted by David Pett

1 comment:

Employment Solicitors Guildford said...

You should only sign a compromise agreement if you are happy with the terms. If you don't want to leave and don't believe you have done anything to warrant being asked to leave, then don't sign it.