Compromise Agreement
Drafting compromise agreements for employers
What is a compromise agreement ?
Put simply, a compromise agreement is a statutory settlement agreement between employer and employee by which the employee waives virtually all actual or potential claims against the employer. In return, the employer pays the employee his or her contrctual entitlements generally with an additional ex gratia, often tax free compensatory payment. The amount of this varies, but typically the sum is the equaivelent of 2-4 months salary. The agreements are in fairly standard form, since they must comply with the relevant statute, and negotiations leading up to the signing of the agreement shoulod be “without prejudice” so that, if an agreement cannot be reached, the negotaitions are not put before a court or Tribunal.
Why do employers use compromise agreements ?
The most common reasons are redundancy and breakdown in relations between employer and employee.
The underlying reasons are that it is often quicker and cheaper for an employer to make an ex gratia payment than to have to deal with an employee remaining in employ who is at best no longer fully commited. In addition, due to the no costs general rule for Employment Tribunal cases, an employer may often find it more cost effective, and certainly time effective, to make a payment rather than have to defend a potential Tribunal claim, howver weak or misguided.
So what are the benefits of a Compromise Agreement ?
• Saving in costs and risk of tribunal proceedings
• Amicable termination of employment
• Certainty