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What are the legal requirements of a UK Compromise Agreement?
As legally binding documents, compromise agreements have number of requirements in order to ensure the finality of a settlement. These are:
- Compromise agreements must be in writing.
- An employee must have sought separate legal advice to that of their employer.
- Compromise agreements must state the grievance or complaint that the employee has against their employer, e.g. for unfair dismissal.
- The contract must have been written in line with the conditions governing the creation of compromise agreements.
- Those solicitors giving independent legal advice must be identified.
A lawyer reviewing a compromise agreement will usually sign it to show that they have reviewed that compromise agreement, and it is vitally important that you seek such advice, as without it, compromise agreements are not legally binding.
If I have signed a Compromise Agreement, can I still make a 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, such as 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.
What are the usual terms of Compromise Agreements?
As each compromise agreement deal with a specific employment related case, each contract will be different, in line with the instructions given to the lawyer drawing up the agreement. However, compromise agreements will include specific clauses, including:
- 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 legal advice on compromise agreements.
Who pays for Compromise Agreements?
Employers usually meet the legal costs of drawing up compromise agreements. A compromise agreement can often be created 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.
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 compromise agreements.
Do I need to pay tax on any compensation that I receive?
A payment of up to £30,000 under a 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 happens if I don’t consent to a Compromise Agreement?
You are under no obligation to sign a Compromise Agreement. By refusing to sign such an agreement, you remain free to pursue any employment claim against your employer in the appropriate Employment Tribunal or court. However, without a compromise agreement, you may receive a lesser settlement under the terms of a redundancy than otherwise could have been possible. Our Compromise Agreement Solicitors will seek the fairest and most satisfactory settlement for you, and may even be able to negotiate a higher settlement with your employer than originally offered.
Are Compromise Agreements confidential?
What can be said about Compromise Agreements depends on the level of confidentiality clauses included in the contract. Some compromise agreements contain clauses stating that the contract terms are confidential, whereas others may prohibit you from speaking to other employees about the entire Compromise Agreement. Your employer may even request that confidentiality applies to acknowledging the existence of the agreement itself.
Agreements on refraining from derogatory comments about your employer, as well as discussing your compromise agreement with the media, are commonly included. Our highly experienced Compromise Agreement Solicitors can discuss all such issues with you, in helping you to understand the agreement before signing takes place.
Do I need to physically meet my solicitor about a Compromise Agreement?
Absolutely not. Our Compromise Agreement Solicitors are happy to deal with Employment Compromise Agreement cases that are sent to us by email or post, and we can also work on your agreement with you by email, fax and telephone. If you wish, however, to meet with one of our team face to face, then please feel free to contact us and we can arrange a convenient appointment with you at one of our offices in Salisbury, Amesbury, Andover and Verwood.
Contact our Compromise Agreements Solicitors
Wherever you are in the UK, from Kent to Essex, for a FREE initial telephone consultation on your Employment Compromise Agreement, call our expert Compromise Agreements Solicitors on 01722 422300 or e-mail advice@compromiseagreementsolicitorsuk.co.uk |
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