Compromise Agreements
Compromise Agreements FAQs
What is a compromise agreement?
A compromise agreement is a legally binding document between you and your Employer. By signing the agreement, you make a binding legal promise to waive, or give up, any claims you have, or may have against your Employer and against individuals within your Employer’s organisation in relation to your employment or its termination.
In return, and depending entirely on the circumstances, your Employer may pay you, or agree to one or more of the following:
- Salary and benefits up to a set date, usually the end of your employment;
- Any bonus, commission or holiday pay due as at the end of the employment;
- Payment in lieu of your notice period;
- Statutory or enhanced redundancy pay;
- Ex-gratia sum as compensation for loss of office;
- Agreed reference.
For the Compromise Agreement to be valid, certain conditions set out in the Employment Rights Act 1996, with corresponding provisions in other laws, must be met.
What does ‘Without Prejudice’ mean?
You may have seen the phrase ‘Without Prejudice’ on your Compromise Agreement or on correspondence from your Employer. Without Prejudice literally means ‘without loss of rights’. Generally speaking, words, offers and negotiations made ‘Without Prejudice’ cannot later be referred to in court or Employment Tribunal if no settlement is reached between the parties.
Discussing or negotiating a matter on a ‘Without Prejudice’ basis can encourage the parties to an employment dispute to come to an agreement.
Will I have to pay tax on the payments under the Compromise Agreement?
Tax will be payable on any payments of salary, bonus or commission and holiday pay. The tax will usually be deducted by your Employer under the PAYE system before the sums are paid to you.
Whether tax is payable on your notice pay is a complex question and one which will depend on a number of factors. You should discuss this with your Solicitor.
Payments for statutory or enhanced redundancy pay (in a genuine redundancy situation) and ex-gratia payments for loss of employment are, in many circumstances exempt from tax up to £30,000 under the Income Tax (Earnings and Pensions) Act 2003. Again, you should discuss the taxable status of such a payment with your Solicitor.
Why do I have to take advice on the Compromise Agreement before signing it?
The terms of the Compromise Agreement will not be binding on you or your Employer unless you have taken independent legal advice on the terms and effect of the Agreement from a ‘relevant independent adviser’. This will usually be a Solicitor specialising in employment law.
What advice will my Solicitor give?
Your Solicitor will advise you on each of the terms of the agreement and on the legal effect of signing it, particularly in relation to your ability to bring any claims against your Employer or against individuals within your Employer’s organisation relating to your employment or its termination.
Will I need to go and visit my Solicitor?
Not necessarily. Provided you comply with our ID requirements Furley Page Employment Law team can advise you over the telephone.
Who pays for the legal advice?
Ultimately, you are responsible for paying the legal fees. However, Employers will usually provide a contribution toward the legal fees. This may or may not be sufficient to cover your legal costs. Usually, the Solicitor will invoice your Employer directly for any agreed contribution at the end of the matter.
What if I disagree with the terms of the agreement?
If you are dissatisfied with the terms of the Compromise Agreement, you may decide not to sign it. If this is the case, you may then wish to take additional legal advice on the options available to you.
Alternatively you may want to negotiate on the terms of the agreement, or may ask your Solicitor to negotiate on your behalf.
What should I do now?
Contact Melissa Edmond or Sian Stubberfield of Furley Page Employment Law team to arrange a convenient time to advise you in person or by telephone.
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