Compromise Agreement

What is a Compromise Agreement?

An Employment Compromise Agreement is a legally binding contract between an employer and an employee. It is used to resolve (or “compromise”) potential legal claims—such as unfair dismissal or discrimination—without going to an Employment Tribunal.

Key Components:

Waiver of Rights: The employee agrees to give up their right to bring any future legal claims against the employer regarding their employment or its termination.

Financial Compensation: In exchange for signing, the employer provides a financial settlement (often called “severance pay”), a portion of which may be tax-free.

Independent Legal Advice: To be valid, the law requires the employee to receive advice from an independent solicitor or certified trade union representative. The employer typically pays for this.

Mutual Protection: The agreement usually includes clauses for a “clean break,” such as:

Confidentiality: Both parties agree not to disclose the terms of the deal.

Non-Derogatory Comments: Neither party will “bad-mouth” the other.

Agreed Reference: A guaranteed professional reference for the employee’s next job.

Why is it used:

Efficiency: It allows both parties to avoid the stress, cost, and time of a lengthy legal battle.

Privacy: It keeps the details of a dispute private, whereas a Tribunal hearing is public record.

Certainty: It provides an immediate, guaranteed outcome for both the employer (who knows they won’t be sued) and the employee (who receives financial security).