Compromise Agreements
You may have heard the term compromise agreement or severance agreement bandied around but you may not be sure exactly what it means. When an employer wants to part company with an employee, whether as a result of a dispute or on amicable terms, a compromise agreement allows the employment to end on agreed terms. A compromise agreement is a useful tool for employers to reduce the risk of an employment law claim.
A compromise agreement is a formal written agreement in which the employer gives the employee a payment and in exchange the employee agrees to gives up their legal rights against the employer, except for a claim for breach of the compromise agreement, certain claims for personal injury and claims in relation to accrued pension rights.
For a compromise agreement to be binding the employee must have taken legal advice on its terms from a ‘relevant independent adviser'.
If you are an employer and you are facing one of the following scenarios:
- An employee is being made redundant; or
- There is, or could be, a dispute between the employer and the employee, whether in the form of an internal grievance or a Court or Tribunal case; or
- There are difficulties at work, or things are just ‘not working out' with an employee or you have mutually agreed a termination with a senior employee or director
then the best solution may be to look for a ‘clean break' and offer the employee a compromise agreement. However, there are a number of issues employers need to consider before taking that step.