When there is a falling out between an employer and an employee it is usually best for all concerned to explore ways of reaching an agreement to settle their differences without all the cost expense and stress of going to a Tribunal. This is where a Compromise Agreement (“CA”) may be useful. It is designed to draw a line under someone’s employment and to leave the employer immune from claims arising out of the employment or its termination in return, usually, for a payment of compensation to a greater or lesser extent, depending on the circumstances.
The employee gives up all rights to make a claim against the employer that he may have by contract, by statute or by common law except in relation to rights that have already arisen under contract e.g. for holiday pay, accrued pay. In short, there is no going back “for more”. It is usual to preserve all accrued pension rights and any personal injury claims.
For the Compromise Agreements to be effective for its purpose the employer will need a solicitor to certify that the contents and the implications of the Compromise Agreements have been explained to the employee. Without that it is not otherwise an impervious shield for the employer against future claims. To ensure that they get this shield employers are usually prepared to contribute to the employee’s legal costs, usually in the region of £250/£300 + vat.
No two businesses seem to produce the same compromise agreement but common clauses in Compromise Agreements deal with:
The basis for and date of termination: It is usually important that a reason is given because of what may be said to a prospective future employer
The sums that will be paid to the employee and when: It is usually possible to ensure that, apart from any element for pay in lieu of notice and to compensate for strict contractual rights, compensation up to £30,000 is tax free. If for some unanticipated reason the Inland Revenue thought that the tax free element should be taxed, a Compromise Agreements often provides that the emplyee will refund the amount in question after the employer has paid the Revenue. This usually covers interest and penalties
The main provisions by which employee gives up rights: These are all-embracing terms, usually listing all the laws that give rights that you are being given up, often contained in two or three clauses.
Refund if employee starts proceedings or breaks any term of the agreement: Such provisions mean that if an employee were to start a claim against the employer for anything that is in fact covered by the Compromise Agreements settlement or broke some other term of the agreement then the whole sum paid to the emplyee (even though the breach of terms might be very small) is refundable to the employer.
Confidentiality: It is important to the employer that an employee should keep the terms of the agreement to himself or to a limited class of people like family, advisers, the Revenue. Failure to do so could result in the employer claiming back its payment. Employers do place importance on this as they do not want your settlement to be quoted back at them by another employee in the future There is often a corresponding obligation on the company to keep the Compromise Agreements confidential Linked to this it is common to find that both sides agree not to make rude or derogatory remarks to third parties about the other.
Reference: It is usual to provide that the employer will provide future prospective employers with a reference in terms set out in the Compromise Agreements. Informal enquiries from future employers will be answered within the spirit of the reference
Return of goods: Technically this applies not only to the obvious items of hardware that may have been supplied by the employer but also any documents that may over the years have accumulated at an employee’s home but which do really belong to the employer.
At the end there is often a string of clauses containing formal material confirming that the Compromise Agreements is in accordance with the statutes, is enforceable by successor and related companies of the employer. These later provisions often say that the Compromise Agreements is “without prejudice” and/or “subject to contract” until signed by both sides. This means that if negotiations break down and a court or Tribunal case goes ahead neither side can normally refer to the CA in support of its case or against the other side.
Download an example Compromise Agreement
