A Compromise Agreement, otherwise known as a Settlement Agreement (or a Redundancy Agreement), is a legally binding contract between an employer and an employee in which they part ways on agreed terms. An employer will normally suggest a compromise agreement, but an employee can do so, too, if they wish.
If you have been offered a compromise agreement, you may be feeling concerned about your finances and the impact it may have on your future employment prospects. Our workplace law specialists at QualitySolicitors are here to answer all of your questions and to support you throughout the process, alleviating stress and uncertainty.
What is covered in a compromise agreement/settlement agreement?
Compromise agreements vary depending upon individual circumstances, such as the contribution an employee has made to the business and the strength of the case.
All compromise agreements must be legally valid and focused on a particular issue,e such as a redundancy or termination. A compromise agreement is only legally valid if the employee has sought advice from an independent legal adviser. The independent legal adviser must supply a written statement that they have given advice, that they meet statutory conditions relating to compromise agreements, and that they have the correct insurance.
Compromise agreements cover the employee’s financial settlement and other conditions. The employer will agree to conditions such as providing a reference (the wording of which will be mutually agreed) and any other obligations such as continuing to fund employment-based training or medical insurance. The agreement may also include additional special clauses.
Be aware of any special clauses and restrictions
Once signed, a compromise agreement is legally binding, so it is important to make sure that the terms agreed are favourable. Although the clauses noted here are ‘special clauses’ they are now commonly included in compromise agreements, so it is important that you and your legal adviser check the document thoroughly.
A confidentiality clause means that both employer and employee cannot make damaging statements against each other and disclose sensitive business information like strategies, unique processes or business documents to a third party. An employer might include the following restrictions:
- Non-compete. The employee may not compete against the employer for business either as a business owner or as an employee of someone else.
- Non-dealership. The employee cannot encourage any clients to follow them into their next business.
- Non-solicitation. This prohibits the employee from contacting the company’s other employees, clients or suppliers for a set period of time.
Special clauses and restrictions can have a huge impact on your future career prospects, and if you breach the agreement then your employer can sue you for compensation. Our employment law solicitors are often able to negotiate a better deal than is being offered to you by your employer.
Employee’s legal fees may be covered by the employer
Most of the time employers pay their employees legal fees. There is no obligation for them to do so, but it is in their best interests to have evidence that all formalities have been adhered to so that the compromise agreement is legally valid.
Settlement agreement guarantee
Where you are being offered a settlement or compromise agreement, and your employer is contributing to your legal costs, we guarantee that you will not be charged more than what your employer is prepared to contribute towards those costs for reviewing and advising you on the agreement. A typical contribution by your employer would be between 200 and 500 plus VAT, depending on the complexity of the agreement.
Where your employer is not contributing towards your costs, we will discuss a fixed fee with you in advance of beginning any work for you. Where we agree a fee with you, this fee will not be varied. This gives you the certainty of knowing exactly what the work will cost before we begin. The fees will be in line with the typical contribution set out above and will vary depending on the complexity of your agreement.
Once a settlement agreement is signed, it is not possible to bring a claim against your employer
You must only sign a compromise agreement when you fully understand and agree to the terms it contains. By signing, you are forfeiting your right to bring any future claim against your employer in court or through an Employment Tribunal (apart from in exceptional cases). That’s why it is imperative that you receive a fair level of compensation both financially and in terms of your employer’s ongoing duties towards you.
Until an agreement is signed, there is no opportunity to negotiate, so it is important to seek trusted, tailored legal advice.
To talk about a compromise or settlement agreement, speak to our specialist employment law solicitors in Derbyshire on 0808 196 3305.