A compromise agreement is used in law most commonly when an employee stops working for an employer and wishes to make a claim. This could be for wages or a salary which hasn’t been paid in full.

It is in effect a payment made to an employee in return for a waiver of any potential claims.

The compromise agreement is an agreement between the employer and the person employed and it is a very specific kind of legally binding contract that must fulfil various criteria as defined by statute, therefore it is usually drawn up by a solicitor.

The person making the claim against their employer can be still working for the company or may have left, or be moving from one role within the business to another.

When a compromise agreement is drawn up by a solicitor it will be tailored very specifically to client.

Under the agreement the employee is likely to receive financial compensation, as consideration for their agreement to settle and in return they need to abandon any potential claims they might have.

A compromise agreement may not only include pay which is owing, it might also include a positive reference, or a contribution to the legal fees incurred by the employee.

Unlike contractual claims, which can be waived by entering into a contractual waiver of such claims, statutory claims (a no-fault claim) can only be waived in prescribed ways, one of which is by means of this type of agreement.

For a compromise agreement to be legally binding it must:

• Be in writing
• Relate to particular proceedings or a particular complaint
• The employee needs to have received legal advice on the terms and the effect of the proposal agreement from an independent advisor such as a solicitor and be aware of what affect this will have on potential claims.
• The independent advisor must be identified
• It is essential that the independent adviser has a current contract of insurance (or professional indemnity insurance) covering the risk of a claim against them by the employee for the advice
• The agreement needs to state that the conditions regulating compromise agreements have been satisfied

When might you need a Compromise Agreement?

In cases of discrimination and victimisation, any form of harassment related to people’s sexual orientation, pregnancy or maternity related dismissal, unfair dismissal.

What claims cannot be settled with a compromise agreement?

There are certain employment claims which are defined and therefore cannot be settled with a compromise agreement. These are:

• Claims which relate to pensions
• Personal injury claims
• Claims which surround the transfer of a business

Can you refuse a compromise agreement?

Whilst an employee can suggest a compromise agreement it is more common for an employer to use it as a tool for both parties to part ways on agreed terms. An employer may suggest a compromise agreement during a job termination or redundancy process, however if an employee doesn’t like the terms of the agreement or doesn’t wish to give up any potential claims against the employer then they do not have to accept.

If you are employee or employer and are considering a compromise agreement, our specialist legal team is here to help. You can contact us today or head to our compromise and settlements page for no obligation advice on which steps to take next.