COMPROMISE AGREEMENT LAW

If you have been dismissed you may be asked to enter into a contract limiting your legal rights in exchange for payment of money. In these circumstances you will need to take advice on compromise agreement law. This type of arrangement is a contract made between an employer and an employee as to the terms upon which the employment is terminated and will usually take account of the previous contractual terms, statutory obligations, the conduct on either side and the relative bargaining positions of each party. There are practical and commercial benefits in that there is avoidance of damaging publicity, reduction of legal costs for an action in court or in the Employment Tribunal and the time and effort wasted in litigating an employment claim.

Legal Conditions

These arrangements were introduced by legislation in 1993 which determines compromise agreement law. It is intended that such an arrangement will legally bind both parties in full and final settlement of an employment dispute when it became apparent that ACAS was reluctant to become involved in the settlement of any claim where there had been no application to an Employment Tribunal. Compromise Agreement law dictates that certain conditions must be met in order that such arrangements are valid:-

• The terms must be in writing and relate to the complaint in question.
• The claimant must receive independent advice from one of the following:
  • A qualified solicitor or barrister
  • An appropriately qualified and authorised trade union representative
  • An advice centre worker who is appropriately certified and authorised
  • A fellow of the Institute of Legal Executives supervised and employed by a solicitor

Compromise Agreement Terms

A compromise agreement is a legally binding settlement entered into between an employee and an employer. It sets forth the terms and conditions of the employees termination. Chief amongst those terms is the employees consent to give up their right to bring a legal claim against the employer in return for a set amount of compensation. Using compromise agreement law is the only mechanism by which a legally binding settlement can be made without initiating tribunal proceedings.

Content

In addition to the employees agreement to give up their legal claims in exchange for a financial settlement, most compromise agreements also cover:

• tax indemnity clause, stating that the employee is responsible for any taxes on the compensation paid
• matters that are to be kept confidential
• a list of statutes under which the employee is agreeing not to bring a claim
• assurances given by the employer
• assurances given by the employee
• post-termination restrictions on future employment

Validity

Compromise agreement law requires the following conditions to be satisfied:

• it must be in writing
• it must relate to a specific complaint which the employee has, or may have, against the employer
• the employee must first obtain legal advice from a qualified adviser
• the adviser must be covered by professional indemnity insurance
• the agreement must name the adviser
• it must contain a statement that all of the conditions of a valid compromise agreement have been met

Refusal

You are not legally or otherwise obligated to sign. Compromise agreement law allows you to refuse the agreement and retain your rights to pursue any legal claims you may have. However, it is just as important to seek advice on what it means if you don’t sign the agreement as it is if you do decide to sign.

Benefits

Compromise agreement law provides you with certainty. There are no guarantees when you bring a claim to an Employment Tribunal. You do not know how much compensation you will be awarded or even if your claim will be successful. A compromise agreement, on the other hand, ensures that you will receive a set amount of money by a certain date.

Cost

Normally the employer makes a contribution to cover the employee’s costs of obtaining legal advice. In most cases the employee will not have to pay anything.

Payment

Compromise agreement law requires the document to state the date by which payment must be made, generally within 7 or 14 days of all parties having signed the agreement.

Tax Implication

Compromise agreement law indicates that you can receive up to £30,000 of compensation tax-free. If your compensation exceeds £30,000, the additional amount will be taxed as income.

Professional Advice Necessary

Legislation requires that you obtain legal advice before entering into a compromise agreement. This requirement is in place for your protection, to ensure that you understand the meaning of the document as well as all of the implications of signing it. A qualified solicitor can advise you on compromise agreement law and whether the proposed arrangement adequately protects your rights and whether the compensation being offered is suitable.

A compromise agreement is often the most favourable solution for both parties, one that is both simple and cost-effective. It is a decision to be taken seriously, however, because once the agreement is signed, it is final. The wisest course is to seek the counsel of a qualified solicitor who specializes in employment law and can help you understand your legal rights.

Employment Law Solicitors

Our panel lawyers are able to offer a wide range of employment law advice including :-

• unfair dismissal
• constructive dismissal
• redundancy
• racial discrimination
• sex discrimination
• racial harassment
• sexual harassment
• disability discrimination
• workplace bullying law
• compromise agreement law
• appeals
• age discrimination
• victimisation
• equal opportunities
• discrimination through pregnancy
• transfer of undertakings
• working time regulations
• commercial agents
• religious discrimination
• discrimination on the grounds of sexual orientation

If you would like free advice on compromise agreement law just email our offices, complete the contact form or telephone us on the helpline.