In an ideal world, every workplace would be filled with staff who are perfectly suited to their job and employers and employees would always enjoy a good relationship. In the real world, however, things do not always go according to plan and it can sometimes be necessary for an employer and employee to part ways, whether through redundancy, mutual agreement or dismissal.
In these instances, a compromise agreement can help to ensure that employer and employee part company on the best possible terms without fear of legal recourse at a later date.
A compromise agreement is a legally binding document which sets out the financial and other terms on which an individual’s employment will be terminated. These will generally include a severance payment to the employee in return for them agreeing not to take the matter to an Employment Tribunal.
It is not uncommon for compromise agreements to be used by organisations such as local authorities when a chief executive or someone with a similar position of seniority is seen to be underperforming.
The contents of a compromise agreement will vary according to the circumstances of each case, but will typically contain details of the amount of compensation to be paid (including redundancy payment, unpaid wages, bonuses, notice and holiday pay), any restrictions on future employment, confidentiality clauses prohibiting disclosure of the agreement’s contents or trade secrets, the nature of any reference to be provided by the employer, whether an announcement will be made to colleagues or clients, and an agreement between both parties that derogatory comments will not be made about each other.
Compromise agreements cannot be used to exclude liability for personal injury claims but a carefully worded warranty can provide some protection. Despite having waived ‘all’ claims, an employee who signs the agreement will also be able to bring claims if the employer breaches the contract, as well as in respect of any accrued pension rights.
For a compromise agreement to be legally binding, it must be in writing, must relate to a particular complaint and the employee must also receive advice as to the terms and effect of the agreement from an independent solicitor.
Lara Murray is a solicitor at Palmers Solicitors, specialising in employment law issues.