How Will a Compromise Agreement Affect Me Financially?

Who pays for Employment Compromise Agreements?

Employers usually meet the legal costs of drawing up compromise agreements. A compromise agreement can often be created or reviewed for as little as around £250-300, and our Compromise Agreement Solicitors will seek to invoice your employer for these costs. We will attempt to work within the budget set by your employer for drawing up the agreement. However, please note that settling your legal costs is ultimately your responsibility, and any additional work carried out on your behalf relating to the compromise agreement may be charged to you.

If I have signed a Compromise Agreement, can I still claim against my former employer?

In three specific areas, you are free to claim against your former employer, despite signing a compromise agreement. These are:

  • Breach of contract – if your former employer has failed to meet his obligations under the terms of the agreement, eg failure to pay your agreed compensation.
  • Personal injury claims – these are usually still valid, however, any pre-existing injuries you may be suffering, and are aware of at the time of signing, cannot be included in a claim.
  • Pension funds – you may still able to make a claim in relation to any accumulated pension contributions during your time working for your employer.

Do I need to pay tax on any compensation that I receive?

Payment of up to £30,000 under an employment compromise agreement can be made tax free. However, tax can apply on payment above this figure, and in other areas. If your agreement includes a PILON (payment in lieu of notice) clause, then your payment will be considered as part of your salary under contract, so will be liable to tax.

If your compensation is structured to include wages to a certain date, and, for example, holiday pay, then you will also be liable for tax and national insurance payments. However, if your agreement contains no PILON clause, then your payment will be seen as a compensatory lump sum, and will be tax free.

Furthermore, your employer will more than likely seek a ‘tax indemnity’ clause for the agreement; this means that any tax payments demanded of your employer in relation to the agreement will be your responsibility to settle.

What is gardening leave?

Gardening leave is the right an employer may have to stop an employee actually coming into the office to work while remaining in paid employment. Why might an employer prefer a worker to remain off work whilst being paid? Common reasons include fears that employees might prove disruptive or undermine morale, might use the opportunity to acquire sensitive business information or attempt to lure clients or customers with them to their new job. An employer will not generally have the right to enforce gardening leave unless there is a provision in the existing contract of employment allowing for it. However the rights to enforce gardening leave is often negotiated as one of the terms of employment compromise agreements.

Looking for an Employment Compromise Agreements specialist?

For compromise agreement advice you can rely on, call our specialist Compromise Agreement Lawyers today for:

  • a FREE first phone consultation on 0800 1404544 or
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