Compromise Agreement / Settlement Agreement

For employers, the main advantage of these agreements is protection from future legal disputes by employees. These agreements are increasingly used in redundancy situations where employers may not fully comply with legal obligations, such as fair selection criteria, proper consultation, or considering alternatives to redundancy. The agreement may also include confidentiality clauses and restrictions on working for competitors or engaging with former clients after you leave.

For employees, the benefit often includes a tax-free, sometimes substantial, additional payment as an incentive to waive employment rights.

You are not obligated to sign a Compromise Agreement, but if you decline, your employer will likely only pay the minimum statutory entitlements, such as notice pay, holiday pay, and statutory redundancy pay.

The agreement is only legally binding if it confirms that you have received independent advice from a qualified lawyer or certified trade union representative. The role of your adviser is to ensure you fully understand the terms and consequences of the agreement before signing. Your adviser must also sign the agreement, confirming that they have provided the necessary advice and do not represent your employer.

As part of the severance package, employers often contribute to the cost of obtaining independent legal advice. If you’ve been offered a Compromise Agreement or Settlement Agreement and need advice, feel free to contact us for assistance.