Areas covered and explained

Compromise Agreement

A Compromise Agreement is a legally binding agreement between employees and employers. It is effectively an out of Court settlement when an employee leaves the company. Sometimes the end of the employment relationship is entirely amicable and the employer is simply compensating the employee for leaving the employment at short notice. An employer may for example wish for reasons not connected with the 5 grounds for dismissal to end the employment relationship with an employee.

Signing a Compromise Agreement does not amount to a dismissal by the employer. It is instead a neutral termination of the employment contract by way of mutual consent.
The first £30,000 of any payment under a Compromise Agreement is normally tax free.

The Employment Rights Act 1996 specifies certain requirements as to when a Compromise Agreement is legally binding. There are two elements:

The employee must have advice from an independent legal advisor. The employer will normally pay for that advice in order for the Compromise Agreement to be completed.
The agreement itself must relate to the matter in dispute