Compromise Agreements are not all the same

Compromise Agreements, soon to be known as settlement agreements, are commonly used by employers as an inducement to employees to agree a mutual termination of employment.

The agreements are generally quite standard, as they are statutorily based and one of the features of compromise agreements is that the employee must receive independent and qualified legal advice which the employer normally pays for.

In the majority of compromise agreements, there is an ex gratia payment made to the employer, in addition to contractual notice money, to encourage the employee to sign. According to Marc Jones from Turbervilles, an expert in employment law, this amount tends to be in the order of 2-4 months equivalent salary but does differ depending on the underlying legal issues or disputes between employer and employee.

So, we’ve established that most agreements are fairly standard and without a lot of difference typically in the inducement. It’s then up to the employee whether to sign up or take his or her chances by perhaps making a claim for unfair dismissal or discrimination or trying to remain in post even though he or she knows that the employer would really rather they leave. Recent changes in the Employment Tribunal are also likely to impact thinking on both sides

But, in some situations and sectors, settlement agreements can be more complicated as explained in more detail in this guide, especially for those in the Financial Services sector or senior employees such as directors. Often in those situations, the employer will seek to incorporate additional clauses into a compromise agreement in the form of post employment restrictive covenants, whether these were included in the contract of employment or not. In addition, the issue of contractual rights can be difficult, as regards things such as bonuses, share options and other benefits, and these agreements can require an additional and expert amount of negotiation.

If you have been offered a compromise agreement which is complex or high value, such as executives with bonuses or other complex or lucrative contractual entitlements, make sure you understand what to seek to negotiate on or not.