What is a Compromise Agreement?
A Compromise Agreement is a legally-binding contract which prevents an employee from bringing a claim against their employer, that is it "compromises" claims such as for unlawful deduction of wages or race discrimination. They can be used to settle Employment Tribunal claims but many claims are settled with COT3s (another catchy term!) through ACAS. (A COT3 is an ACAS agreement which can be used to settle Tribunal claims- more on this later ...)
Why are Compromise Agreements issued?
For certainty.
If an employer is paying enhanced redundancy pay, settling a grievance or an Employment Tribunal claim, they will want to be sure that after agreeing a settlement they will not then be faced with claims by the employee.
Equally, the employee will know what money (if any) they can expect as part of the settlement, when it will be paid, that the employer won't bring claims against them and what kind of reference (if any) they can expect.
Contents of a Compromise Agreement
- The parties to the Compromise Agreement
- Which claims (e.g. unfair dismissal, sex discrimination) are being "compromised"
- The settlement sum, for example an enhanced redundancy payment or an "ex-gratia" payment - this is normally the tax-free bit (generally up to £30,000)
- Other sums, for example holiday pay, notice pay, bonus ...
- Tax Indemnity - this clause is to protect the employer if some or all of the sums on offer are taxable. If more tax is payable - this clause usually requires the employee to reimburse the employer.
- Confidentiality - the employer usually insists that the Compromise Agreement is kept confidential
- Restrictive Covenants - these are clauses which restrict the employee from competing with the employer. They're not in all Compromise Agreements because they're often in the contract of employment anyway.
- A Reference - these aren't in all Compromise Agreements, but they are a useful part of a settlement if they can be agreed.
PHEW!
The Formalities
For the Compromise Agreement to be valid, the recipient must be advised on the purpose and effect of the Agreement by a "relevant independent adviser" (like a solicitor specialising in employment law - my contact details are on my website!).
Legal Fees
With most Compromise Agreements, the employer pays a contribution towards the legal fees. Whether or not this is enough will depend on the amount of the contribution but also the amount of work that needs to be done, for example amending the Compromise Agreement or negotiating an improved offer.
The Tax Position
Most settlement payments are exempt up to £30,000, for example redundancy pay or an ex-gratia payment to settle claims. If there is no Payment In Lieu Of Notice (PILON) clause in the contract, at the employer's discretion the PILON can be paid without deductions for PAYE and NI. (NB I'm a solicitor not an accountant and an accountant's tax advice will clarify the position).
The ACAS COT3
COT3s are like Compromise Agreements only they are used to settle Employment Tribunal claims and it is ACAS that has the responsibility for finalising them.Once the parties agree the terms of the COT3, ACAS will confirm there is now a legally-binding agreement and they will inform the Employment Tribunal that the case has been settled.
CONTACT ME
If you want to find out more about the services that I offer, call 01462 418629, or visit my website www.hertsemploymentlaw.co.uk.
Disclaimer
This blog post is intended for information only. It is not intended to amount to legal advice or be relied on in legal proceedings and readers are advised to take specialist legal advice at all times.
Legal Fees
With most Compromise Agreements, the employer pays a contribution towards the legal fees. Whether or not this is enough will depend on the amount of the contribution but also the amount of work that needs to be done, for example amending the Compromise Agreement or negotiating an improved offer.
The Tax Position
Most settlement payments are exempt up to £30,000, for example redundancy pay or an ex-gratia payment to settle claims. If there is no Payment In Lieu Of Notice (PILON) clause in the contract, at the employer's discretion the PILON can be paid without deductions for PAYE and NI. (NB I'm a solicitor not an accountant and an accountant's tax advice will clarify the position).
The ACAS COT3
COT3s are like Compromise Agreements only they are used to settle Employment Tribunal claims and it is ACAS that has the responsibility for finalising them.Once the parties agree the terms of the COT3, ACAS will confirm there is now a legally-binding agreement and they will inform the Employment Tribunal that the case has been settled.
CONTACT ME
If you want to find out more about the services that I offer, call 01462 418629, or visit my website www.hertsemploymentlaw.co.uk.
Disclaimer
This blog post is intended for information only. It is not intended to amount to legal advice or be relied on in legal proceedings and readers are advised to take specialist legal advice at all times.
