The most common reasons you would utilize a compromise agreement include removing an employee due to misconduct or poor performance, avoiding a legal challenge to redundancy (a scaling back or complete cessation of certain employee activities), or making it easier on senior staff you want to let go.Under UK law, a compromise agreement is one of the only ways an employee can waive certain rights under the Employment Rights Act. Therefore, as an employer, your use of a compromise agreement is a powerful tool to help you avoid future legal claims. Without one, you may find yourself defending against relentless legal claims from past or present employees.
Consider entering into a compromise agreement if you think your employee may take you to court claiming unfair dismissal or some other related claim.;
, If your settlement negotiations are taking place in order to settle an existing dispute, your discussions can take place on a without prejudice basis. This means the statements you make in a genuine attempt to settle an existing complaint cannot be used against you in future legal proceedings. There are a few exceptions for fraud and undue influence.


Therefore, when these principles apply, you can feel confident that your claims and proposals will not be used against you if you cannot reach an agreement with your employee.
Be sure to state in your agreement that any negotiations were carried out on a without prejudice basis. If you do not, or if a court does not agree that they should be, the claims and proposals you make may be used against you during employment tribunal cases., During negotiations, talk with your employee and determine the types of provisions you will include in the agreement and the types of concessions each party will make. From the employer's perspective, you should be willing to offer the following in order to reach an agreement, particularly if you feel the employee has a strong case against you:


Legal fee contributions, which is common practice in these agreements. This offer will let the employee know you will help them with the legal costs of obtaining advice from a relevant independent adviser, which is required by law.
An employment reference, which is also common practice. By agreeing to give the employee a positive reference for future jobs, you make it more likely the employee will enter into a compromise agreement with you., The first portion of your compromise agreement should identify the parties to the agreement, the date the agreement is entered into, and the basic facts surrounding the need for the agreement.


The first sentence should include the names of both parties and might look like this: "This Agreement is intended to detail the agreed terms regarding the termination of 's employment with ."
The next sentence will include the date of the agreement, which might look like this: "This Agreement is made on the day of ."
Be sure to include a general set of facts that outlines what the dispute is. This will likely include why you are letting the employee go and why the employee may have a dispute against you., Your first substantive clause will be your termination clause. This will lay out how the employee will be let go. It should include the date the employee will be terminated and how the employee will receive his or her salary and benefits until the termination date.


For example, you might state: "'s employment as will terminate on . The employee will receive his/her normal salary and benefits up until the termination date.", As required by UK law, your compromise agreement must identify the particular complaints your employee has against you. This could include claims for redundancy or unfair dismissal.


If the employee has not yet filed a case, you might state: "The employee believes he/she is entitled to make claims for and has raised them informally prior to entering the Agreement."
If the employee has already made a formal complaint, you might state: "The employee has brought proceedings in the employment tribunal under the case number relating to the following complaint . These complaints will be withdrawn within seven days of the date of the Agreement.", The amount of compensation you choose to pay the employee is not set by statute. You and your employee must reach an agreement on this amount, and that amount should be included in your agreement. Generally, the amount of compensation given will depend on the length of employment, the reason you are dismissing the employee, and your financial situation. Once an agreement regarding the amount to be paid has been reached, include the following type of language:


"Without any admission of liability, the Organization agrees to pay the following sums owed to upon this Agreement being signed and becoming unconditional. The sum of will be payed to . The above sum will be paid within days of receipt of this Agreement signed by the employee and certified by the relevant independent adviser. The employee agrees to repay the Organization the sum above if the employee continues or starts any legal proceedings of the type specified in this Agreement.", Generally, the first £30,000 paid to the employee will be tax-free.If you are paying an employee more than that, state explicitly in your agreement that any taxes owed will be the responsibility of the employee.


For example, you might say: "The payment made according to this Agreement shall be made free of tax in accordance with Chapter 3 Part 6 of the Income Tax (Earnings and Pensions) Act of 2003. Any compensation sum below £30,000 will be paid tax-free. For any amount over £30,000 the employee will be liable for basic rate income tax on the figure over £30,000.", It is common practice for you, the employer, to pay reasonable legal fees so the employee can consult with a relevant independent adviser. You should agree to pay a particular amount you feel is reasonable based on the circumstances and complexity of the agreement.If the costs exceed the amount you contribute, you should state those extra costs will have to be paid by the employee.


You should state: "Regarding the legal costs incurred by in seeking independent legal advice, the Organization will, on production of an appropriate VAT invoice, pay the following sum inclusive of VAT as a contribution towards legal costs, .", Your agreement should require the other party to keep the terms of your agreement confidential. This should be required so you can negotiate freely with other employees on compromise agreements. If other employees know how much you paid an employee, they may ask for the same or similar terms. In addition, the confidentiality clause should require that the employee remain silent about their time employed with you.


For example, your confidentiality clause may prevent the employee from making derogatory statements about you. Your employee may ask you to promise not to make and derogatory statements in return.
The confidentiality clause's scope can be expanded or reduced as needed. For example, you may allow your employee to talk to the people closest to them (e.g., family). You may also state that your employer can talk to future employers about the circumstances surrounding their employment with you., You are required to let your employee know he or she must speak with a relevant independent adviser. This should be made clear somewhere in your agreement. For example, you may state: "Employee has agreed that a relevant independent adviser has given employee advice regarding the Agreement as required by law."

, While you should agree to this before even starting negotiations, it should also be included in your agreement. This provision will ensure the claims and offers you make during negotiations cannot be used against you in future proceedings.


For example, your agreement might say: "Prior to signature this Agreement is without prejudice and and subject to contract and cannot later be relied upon by either party should an agreement not be reached.", Every agreement should contain common provisions that will usually only come into play should your agreement be challenged in court. Some examples of these provisions include:


A severability clause, which states that if any provision of your agreement is found to be invalid, the rest of the agreement will still be in force.
An entire agreement clause, which states that the agreement is the entire contract and that it supersedes any agreement made before or after it.
A jurisdictional clause, which states what laws will apply to your agreement.
 The last page of your agreement should include space for signatures. Not only will you need to leave room for your signature and your employees signature, you will also need to leave space for your employee's relevant independent adviser.This will ensure you comply with the requirement that your employee speak with an adviser.
 One attachment your employee might insist on is a positive job related reference. While your employee can ask for a reference to be incorporated in the agreement, your reference must always be true, accurate, and fair. If it is not, you might be liable for misrepresentation., In order to be valid, a compromise agreement must be in writing. Therefore, after you draft your compromise agreement, make sure you print it out and offer a hard copy to your employee. If you do not have the agreement in writing, it will not be enforced.
 A valid compromise agreement must be signed by the employee. However, the employee's signature is not adequate unless he or she receives advice from a relevant independent adviser. A qualifying adviser must be a solicitor, barrister, certified trade union, advice center representative, or a fellow of the Institute of Legal Executives employed by a solicitor's practice.


To ensure compliance, make sure your signature page has space for the independent adviser's signature, and make sure that signature is present.
 Once the agreement has been executed, make sure you pay the employee the agreed amount, usually within 7-21 days. In addition to any compromised amount, be sure you pay the employee everything owed under their employment contract. For example, you may owe the employee bonuses or commissions, pensions, or medical and life insurance. These amounts will usually be paid separately (during normal payroll periods) from your compromise agreement payments., Some claims cannot be waived by a compromise agreement. Therefore, even if you enter into a valid compromise agreement with an employee, you might still face claims for breach of contract, personal injury, or accrued pension rights.


A breach of contract claim may arise if you breach the compromise agreement (e.g., if you fail to pay the amount agreed upon).
A personal injury claim may arise for any injury occurring after you enter into the compromise agreement. You cannot be sued for any injury the employee knew about at the time the compromise agreement was executed.
A claim for accrued pension rights may arise if you fail to pay your employee an amount due to them under his or her pension plan.
Determine if you have the need to offer a compromise agreement.
Ensure your negotiations are carried out on a without prejudice basis.
Finalize the terms of your agreement.
Outline the agreement.
Lay out the terms of termination.
Identify the particular employee complaints relating to the agreement.
Include a detailed description of the payments and compensation to be made.
Specify how taxes will be paid.
Detail who will be responsible for legal costs.
Require confidentiality.
Demand independent legal advice.
Reiterate that negotiations were without prejudice.
Draft boilerplate provisions.
Include a signature page.
Attach a reference.
Make sure the agreement is in writing.
Ensure the employee signs the agreement only after consulting with a relevant independent adviser.
Deliver the money owed.
Defend against any additional claims the employee makes.
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