Employment Law

In the UK, where there has been an irretrievably breakdown in the relationship between employer and employee, one possible remedy is for both parties to enter into what is recognized as a ‘Compromise Agreement’. A Compromise Agreement is a legally binding agreement which enables the employee to receive an agreed lump sum as compensation for loss of office, the initial ₤30,000.00 of which is tax free of charge (plus an agreed reference in specific cases), in return for agreeing not to pursue their case against the employer to the Employment Tribunal.

Most varieties of employment law dispute can be resolved by way of Compromise Agreement, anything from an unfair dismissal scenario to race and sex discrimination.

To be valid, the Compromise Agreement must be in writing, specify the dispute being settled, and state that the conditions governing Compromise Agreements have been complied with. The employee must also have received independent legal advice on the Compromise Agreement from a qualified person insured to provide it (i.e. the employee’s solicitor), and the Compromise Agreement should identify who that individual was. Generally, the employer pays the costs involved in the employee taking this advice.

The standard terms that are typically incorporated into the Compromise Agreement contain: the size of the payment, that the employee will not pursue any claim against the employer, that the first £30,000.00 will be paid tax free of charge, that the employer will offer the employee with an agreed reference, a tax indemnity, confidentiality, no derogatory remarks by either party about each other, return of business property, and that the employee will continue to abide by the restrictive covenants in their contract of employment.