Compromise Agreements are legally binding agreements between an employer and an employee (sometimes referred to as a termination settlement). It is usual for a Compromise Agreement to be entered into either shortly before or after termination of an employee's employment.

An employment Compromise Agreement allows for a clean break of the employment relationship wherein the employee agrees to waive their right to bring claims in return for an agreed sum of compensation.

Employers need to identify where the risk for any future claim may lie and assess the potential liability of the company before arriving at an appropriate figure to offer the employee. It may also be wise to use a Compromise Agreement where an ex gratia payment is being made, as in the case of redundancy.

Our Compromise Agreement solicitors will advise on the tax implications of the figures put forward in the Agreement and ensure any references to be provided are both accurate and legally compliant.

The cost

It is usual for the employer to provide a contribution towards the employee's legal costs which will be referred to in the Compromise Agreement and paid directly to the employee's solicitor. This will start at £200 (plus VAT) for straightforward cases, but may be higher where there are complex issues.

Where possible we offer a fixed price for a tailor-made Compromise Agreement. This includes:

• Initial interview to discuss the background issues.

• Advice and assistance in relation to outstanding disciplinary and grievance matters.

• Advice on the amount to be offered the employee.

Timing of providing a Compromise Agreement

Case law shows if a Compromise Agreement is introduced, particularly in relation to any workplace discrimination claim, the contents of the Compromise Agreement and the way it is given to the employee may become admissible evidence as part of any Employment Tribunal proceedings. It is therefore essential employers get legal advice before ‘without prejudice' negotiations start.

Compromise Agreement advice for employees

It is a legal requirement that an employee receives independent legal advice before entering into a Compromise Agreement. Employers usually pay a contribution towards the cost of this legal advice, limited to a fixed sum.

In most straightforward cases, the contribution should be enough to cover all costs. However, where there is a potential claim, for example a workplace discrimination or unfair dismissal claim, we will assess the potential value of the claims and advise whether the compensation offered is a fair settlement sum.

In some cases we may need to negotiate on an employee's behalf to increase the package offered. The additional legal fees incurred can be paid for in one of three ways:

• We negotiate a higher contribution from the employer.

• A private client arrangement with the employee.

• A no-win, no-fee agreement where we take a percentage of any package increase (sometimes called a Contingency Agreement).

Other terms we can negotiate are:

• An agreed reference attached to the Compromise Agreement.

• Leaving announcement.

• Provisions for payment to be made directly into pension funds for tax efficiency.