Derby compromise agreementDerby compromise agreement

What is a Compromise Agreement?

A compromise agreement is a binding contract containing the settlement terms reached between an employer and employee when a worker’s employment is terminated. Other than proceedings to enforce the agreement further litigation on the subject matter of the agreement is not possible. There are a number of different scenarios when a compromise agreement can be used e.g. a redundancy, by mutual agreement, dismissal, to settle an Employment Tribunal claim.

Why do you need advice about a Compromise Agreement?

The purpose of a Compromise Agreement is to provide certainty for both parties as to what has been agreed and that there will not be any further proceedings. As no further proceedings may be brought it is essential that you understand what you are agreeing before signing a compromise agreement.

Consequently it is a legal requirement of any Compromise Agreement that you have received independent legal advice. Usually the employer will contribute to the legal costs incurred in obtaining this legal advice. We offer expert free legal advice and we charge the employer on conclusion of the Compromise Agreement.

Does your former employer have to give you a reference?

There is no legal obligation on an employer to provide a reference. However any reference should be true, accurate and fair. If not, the employer may be liable for defamation. However, given that there is no duty to provide a reference it is better to include a reference into the compromise agreement, in which case the reference becomes part of the agreement.

Will you have to pay tax on any compensation payment?

You usually have to pay tax and national insurance on any wages and holiday pay.

As a rule, the first £30,000 of compensation for loss of employment is tax-free. Redundancy payments up to £30,000 (whether contractual or statutory) are normally tax-free. Payments in lieu of notice are tax free, as long as the employer does not have a contractual right to make a payment in lieu of notice and in a redundancy situation, provided the employer does not routinely make a payment in lieu of notice. Continued use of benefits in kind (e.g. a mobile phone or company car) is usually free of tax.

Even if the compensation is being given to you tax free, the agreement usually stipulates that if the Inland Revenue claims tax, you will be responsible for paying it, not the employer.

Can you tell anyone about the Compromise Agreement?

A confidentiality clause is now commonly included in compromise agreements. Sometimes a confidentiality clause will only cover the terms of the settlement not the bare fact you have reached an agreement. Sometimes, the clause prevents you from even revealing there is an agreement.

Can you say what you want about the employer after the agreement is signed?

An agreement can contain a clause which prohibits you from making derogatory statements about your former employer or people who work or have worked for the employer. It is best to make the clause mutual so your employer cannot bad mouth you either.

What should you do now?

Fill in the information on the questionnaire and either send by post FAO – Compromise Agreements, McIntosh Fleming & Co. Solicitors,

our expert employment solicitor will contact you direct.

What service will McIntosh Fleming & Co. provide?

An employment solicitor from McIntosh Fleming & Co. will consider the draft provisions of the compromise agreement and provide you with written advice on your agreement. If there are amendments needed subject to your instructions we will contact your employer and negotiate amendments needed.

If you have any specific questions you will be able to telephone or e-mail the solicitor concerning the wording of the agreement.

If the provisions of the draft are suitable then arrangements will be made for it to be signed by you and by our solicitor and then forwarded to your employer for their signature. Once this has been done it is then legally enforceable.