Compromise Agreement Advice

As each compromise agreement deal with a specific employment case, each contract will be different, in line with the instructions given to the lawyer drawing up the agreement. However, compromise agreements [which were  re-titled Settlement Agreements back on July 29 2013], often include the following specific clauses:

  • The amount of compensation to be paid to you up to £30,000 tax free, though if payment is made up of wages and holiday pay, then tax and national insurance contributions will apply
  • Tax indemnities. Under most compromise agreements, employees are usually asked to provide their employer with a ‘tax indemnity’, meaning that the employee will remain responsible for paying any tax or national insurance demanded on the agreement.
  • Whether a PILON (payment in lieu of notice) applies. If a PILON is included in a contract, then tax on the payment will apply, as the payment is counted as money received whilst still in employment. However, if there is not a PILON in the contract, payment will be tax free, as the money will be treated as compensation.
  • Terms of confidentiality and what other employees know of the compromise agreement. These terms can include revealing the existence of the contract to others, as well as talking to, for example, the press. Confidentiality clauses may also prohibit the revealing of ‘trade secrets’, or sensitive knowledge applicable to your job.
  • Agreement not to make derogatory comments about your employer – this can usually work both ways, as a mutual agreement can cover both yourself and your employer against one making insulting of critical comments about the other.
  • Giving up the right to make certain specified claims against your employer. Compromise agreements will usually include a long list of potential legal claims, the right to make which an employee gives up under the terms of a compromise agreement. Employers usually require these in writing in order to make the agreement legally binding. Each listing must be specific, as courts have previous ruled that an overview agreement, in which general legal areas under which an employee can bring a claim are stated, are not enforceable.
  • Agreement on references to be given to you by your employer. Though there is no legal obligation for an employer to provide you with a reference, a clause agreeing on the details of such can be included in a contract. This will usually be a basic reference, outlining job responsibilities and similar details.
  • Restrictions on starting future employment. Some employers will try to include such restrictions in a compromise agreement. This is a good example of the importance for employees of seeking specialist and robust compromise agreement advice.

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