With the current state of the economy, many employees are finding themselves in the position whereby thay have been offered a compromise agreement by their employer. A compromise agreement is an agreement that records the terms and payments to be made to the employee, in return for a complete waiver of claims by the employee. It offers a benefit to the employee, because they can have a lump sum of money, (some of which is Tax free), and offers a benefit to the employer because thay can let the employee go fairly swiftly without worry of an Employment Tribunal claim.
If you sign a compromise agreement, you will be giving up all rights to claim against your employer (subject to certain exceptions). Therefore, the employer will usually pay a severence payment in return for your signature. As the law stands at the moment, up to £30,000 of a payment made soley as compensation for loss of your employment can be made tax free. An employer should carefully consider the right figure to offer the employee. It would have to be enough to make the employee view it as a better option than going to Tribunal.
The employer must also be careful about how they put forward the idea of a Compromise Agreement to the employee. If proposed in the wrong way the employee may easily take the view that their dismissal had already been decided upon. In these circumstances, the employee could resign and may have a claim of constructive dismissal. However, in many cases the employer and employee negotiate a settlement with which they are both satisfied and then a compromise agreement will be drawn up.
A compromise agreement is a statutory document and it must comply with certain conditions in order for it to be valid. One of those conditions is that the employee must obtain legal advice on the terms and effect of the proposed agreement and its effect on the employee's ability to pursue any rights before an employment tribunal. The legal adviser should explain what the terms of the agreement are and what they mean. As well as the terms in the agreement required to satisfy the conditions in the legislation, the employer is likely to add in other terms with which the employee must comply. If the employee does not, the employer may be entitled to receive its money back. It is common practice for warranties from the employee to be included in a compromise agreement. These usually cover the return of the employer's property, confidential information and documents relating to its business and confirmation that the employee has not received an offer of employment prior to entering the compromise agreement. Employees are also frequently required to warrant that they have not committed any repudiatory breaches of their contract of employment (which would have entitled the employer to terminate their employment without notice or payment in lieu of notice).
The agreement may also include a warranty from the employee confirming that the claims listed are the only claims that they have and a statement that the employer has relied on the warranty in entering into the agreement, a provision entitling the employer to withold part of the termination payment for at least three months and only pay that remaining part of the payment if the employee has not brought any claims against the employer, or a requirement to repay the termination payment if the employee brings a claim.
Where there is a breach of a compromise agreement it can be enforced by way of a claim for breach of contract in the civil courts or as a contract claim in an employment tribunal. Although you will be settling all claims you may have against your employer, one of the exceptions to this is that you will be able to sue under the Agreement if your employer fails to pay you the severance payment (or any other sums due under the Agreement).