Compromise Agreements: what are they?

31 07 2009

This is a fairly common question.   Basically a compromise agreement (aka termination or settlement agreement) is a legally binding contract between employer and employee whereby the employee accepts a financial package (usual elements include: compensation for loss of employment, notice monies, outplacement services provision, release of stock etc) in return for agreeing not to sue the employer for breach of contract, or unfair dismissal or for any discrimination related reason. The employee will also commonly agree to keep the agreement itself confidential and to say nothing about the employer’s trade secrets and affairs, amongst other requirements.  In order to be legally binding the employee needs to take independent legal advice on the terms of the agreement from a qualified legal adviser – usually a solicitor.  The employer will usually pay a contribution towards the cost of that advice to encourage the employee to get the advice.

 If you find yourself in this situation, it is important to seek advice from a solicitor that regularly deals with employment law regularly so that advice can be given to you on whether the offer should be accepted at all (i.e. do you have reasonable prospects of success with a claim for unfair dismissal) and, if the advice is to accept the offer in the agreement, are the terms of the agreement reasonable, or do they place too onerous a burden on the employee? Some compromise agreements I come across contain clauses that are illegal or, at least, unfair, and in many cases are too ambiguous. 

Usually the terms of the agreements can be renegotiated quickly and with a minimum of expense.  Overall, a compromise agreement is a very good way of settling legal disputes and they are not limited to use in redundancy situations, although that is where we most commonly some across them. 

Please click here to see a previous post on the same subject.

Please click here to see my most recent post.

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