Compromise Agreements

Often employers offer compromise agreements to existing and former employees so as to buy off the risk of the employee suing the employer. By entering into a compromise agreement you are basically accepting a sum of money and in return giving a promise that you will not sue the employer. Once the agreement is signed you cannot sue that employer - accept in very limited circumstances e.g. to recover the money agreed to be paid to you under the agreement.

You need to think very carefully as to whether or not the money offered represents a fair offer for signing away your rights. As such we need to assess the potential claims you may have and the value of those claims.

Compromise agreements often have greater consequences than first appear. For example most agreements provide that if tax is payable on the settlement sum (which is determined by HMRC and not the employer) the employee is liable to pay all the tax including the employers NI.

Employees should also consider carefully any restrictions placed on them by the compromise agreement - this may be in the terms of a confidentiality clause restricting what can and cannot be said about the termination of employment - but also in relation to restraint of trade clauses - does the agreement seek to prevent you from working with a competitor or from setting up in competition with the employer? Such clauses can be more easily enforced when contained within a compromise agreement than when within a contract of employment.

An employee is required to take legal advice for the agreement to be enforceable. Agreements are now more complex and the signing of them should not and cannot be a mere formality. It is crucial that you are fully aware of the implications of what you are signing and think carefully before entering into the agreement.

Should you be considering a compromise agreement for a free initial consultation please contact Andrew Moore, andrew.moore@clough-willis.co.uk