Compromise agreements in employment disputes

You and your employer have had a major disagreement about your job role. They have treated you badly. The grievance you submitted was not successful.  You’re not sure what to do, but you think there’s no going back, so maybe it would be best to leave.

When this happens, one of your next steps might be to negotiate a ‘compromise agreement’ with your employer as the basis for settling your disagreement.

Compromise agreements have officially been called ‘settlement agreements’ since 2013. But if  you (or your employer) still refer to them as compromise agreements, this page is for you.

We’ll look at what compromise agreements are, and why you need one to record legally the terms for resolving your dispute with your employer.

See our main page on settlement agreements for significantly more detailed information and in particular, discussion of how much financial compensation you should get.

What is a compromise agreement?

A compromise agreement is a legally binding contract between you and your employer. It’s a way for both parties to agree on the terms under which you’ll leave your employment.

It typically includes things like financial payments, and possibly a reference letter, or specific conditions that both sides must follow. In exchange for these, you agree not to make any future legal claims against your employer.

Why use a compromise agreement?

There are several reasons why you and your employer might choose to use a compromise agreement, including:

Clarity and certainty

Both parties (you and your employer) get a clear understanding of what will happen when you leave. This includes the amount(s) of any final payment(s), the date of your departure, notice periods and other specific details.

Avoiding legal disputes

It helps to avoid lengthy and costly legal battles. By signing the agreement, you agree not to take your employer to court over any issues related to your employment or its termination.

Confidentiality

Many agreements include clauses that ensure the details of the agreement remain confidential. This can be beneficial for both you and your employer, protecting the reputation of the business and your privacy.

 

Potential pitfalls of compromise agreements

While compromise agreements can be beneficial, there are potential pitfalls that you should be aware of:

Pressure placed on you to sign

You may be put under pressure by your employer to sign quickly, especially if you are in a vulnerable position. It’s important to take the time to understand the terms fully.

Unfair terms

Sometimes, the initial offer by your employer might not be fair. This is why negotiation and legal advice are crucial parts of the process.

Future employment restrictions

The terms of the agreement might include ‘restrictive covenants‘ which mean you’re restricted from doing things such as starting a similar business, or working for competitors within a specified time of leaving your job. It’s important that you understand any such clauses and their impact on your future employment opportunities.

Key ingredients of a compromise agreement

The key ingredients of a compromise agreement are:

A final payment

The final payment is usually a lump sum of money that your employer pays you. It can include outstanding wages/salary, notice period pay, bonuses, and sometimes an additional amount as compensation and/or a good will ‘ex-gratia’ payment.

References

Your employer might also agree to provide a positive reference for your future job searches.

Confidentiality clauses

Both you and your employer will usually agree to keep the terms of the agreement confidential and there is likely to be a ‘non-disclosure agreement’ (NDA) incorporated in your compromise agreement to that effect.

Preventing future claims

By signing the agreement, you will also be agreeing not to pursue any legal claims against your employer. This is a crucial part of the agreement and is likely to be one of your employer’s main reasons for using it.

How is a compromise agreement reached?

Reaching a compromise agreement involves several steps, including:

1] Negotiation

Initially, you and your employer – or your representatives – negotiate the terms of the agreement. This can involve several rounds of talks to ensure both sides are satisfied with the agreement.

2] Drafting the agreement

Once the terms are agreed upon, the agreement is put into writing – usually a task done by your employer or their lawyers. This document outlines all the agreed terms in detail.

3] Legal advice

By law, you – as the employee – must receive independent legal advice before signing the agreement. This is to ensure that you fully understand the terms and implications of the agreement and that it reflects your best interests. (See also below.)

4] Signing the agreement

Once you have received legal advice and are satisfied with the terms, both parties sign the agreement. After this, it becomes a legally binding contract.

The requirement for legal advice

A critical aspect of a compromise agreement is the requirement for you, as the employee, to obtain independent legal advice. This is not just a formality; it’s an essential part of the process.

The adviser, usually a solicitor, will explain the legal terms of the agreement to you in plain English. Their goal is to ensure you understand your rights and what you gain and give up by signing the agreement.

Remember that, without this advice, the agreement is not legally binding. This step is designed to protect you and ensure you are making an informed decision before you sign the agreement.

 

 

Is your old compromise agreement still valid?

If you entered into a compromise agreement before they were renamed ‘settlement agreements’ in July 2013, your agreement remains broadly valid and legally binding. The name change alone does not affect the contents of the  agreement.

However adjustments would need to be made to allow for changes in the law. You may now also face issues related to its terms and conditions or enforcement (for example: non-disclosure agreements and non-compete clauses).

An experienced employment lawyer can review your old compromise agreement in the context of current laws/procedures and provide advice and guidance on your employment rights and options.

Getting practical expert help

Monaco Solicitors are experts in employment law and only represent employees (not employers).  We can help you with your compromise agreement and:

• • guiding you through the implications of any old compromise agreement that you have, and ensuring that it still serves your best interests;
  • helping you understand your employment rights in your particular situation;
  • negotiating the terms of a new settlement agreement (working with you, or on your behalf) and on a ‘no win no fee’ basis if possible;
  • advising you on any settlement agreement that you’ve already been offered by your employer.

Contact us:

Via this link
By email: www.communications@monacosolicitors.co.uk
By phone: 020 7717 5259