Compromise agreements: what to consider before signing

Compromise agreements are used by employers when dismissing staff or making redundancies and act to provide certainty for both the employer and the employee. Commonly employers will use compromise agreements to offer an employee a severance package in return for the employee agreeing to surrender his or her right to make an employment tribunal claim against the employer at some later date. The agreement will also deal with the treatment of any unpaid bonuses, wages and accrued but unused holiday the employee is entitled to.

By signing the contract, the most important right an employee surrenders is the right to make a tribunal claim against the employer, including any claim relating to unfair dismissal, discrimination or harassment, amongst others. You will however, subject to the terms of your specific agreement, still be able to make a claim against your employer in relation to pension rights, personal injury and also in the event your employer breaches the agreement in any way.

Negotiating a reference

Leaving an employer can be both daunting and exciting, opening doors to new employment opportunities. To ensure you are in the best possible position to find new employment, you can negotiate with your current employer so a reference is supplied as part of the agreement. If such a request is not made at an early stage of negotiations, your employer may refuse to supply you with a reference.    

It is important employees are familiar with the terms of their compromise agreement as they will often include a confidentiality clause restricting what details of the agreement the employee can disclose to colleagues and the local media. This may also include a non-derogatory statements clause which prevents the employee from making such statements about the employer or people who work for the employer.

Employees are often considered to be in a weaker negotiating position than their employer, particularly when their job is apparently on the line. For this reason it is a legal requirement that employees obtain independent legal advice on the compromise agreement and are advised by a solicitor before the agreement is signed. This ensures that as an employee you are aware of your rights and are not bullied or mislead by your employer into signing an agreement that is unfavourable. If independent advice is not sought or provided by the employer the agreement will not be considered binding on both parties and will, for all intents and purposes, be worthless.

It is common practice for an employer to make a contribution towards the cost of the employee seeking legal advice on the terms of the proposed agreement.

David Dixey is an Employment Law lawyer providing employers and employees across the region with specialist Employment Law advice.