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What is a Compromise Agreement

What is a Compromise Agreement - all you need to know. We are often asked what is a Compromise Agreement - it is a legally binding agreement for both employees and employers to an out of Court settlement. Any other Agreement which is not sanctioned through a Compromise Agreement will not be legally binding for either party. The only exception to this is an agreement that has been reached using a form called a COT 3 through the Arbitration and Conciliation Service (ACAS).

The above gives you a summary of what is a compromise agreement and below I have detailed further information on what is in a compromise agreement.

What is a compromise agreement, a compromise agreement should have the following sections:

  • Termination of Employment
  • Termination payment. How much, when will it be paid and who will cover the tax.
  • Resignation of Directorship (if applicable)
  • Tax indemnity
  • Secrecy
  • Post termination restrictions
  • Company property
  • Claims against the company

The Employment Rights Act 1996 Section 203 (3) details the requirement for a Compromise Agreement for it to be legally binding. The first essential element is that the employee must have advice from an independent legal advisor, normally a Solicitor. Without independent legal advice, the agreement is invalid. The agreement itself must relate to the matter in dispute. For example, if the employee and the employer wish to end their relationship it must relate to the termination of your employment.

You will need to find a good employment lawyer solicitor to negotiate the Compromise Agreement for you. A good solicitor will get you a better deal with better terms and more money so see our web page about selecting Employment Solicitors.

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Employment Law: A Simple Guide Book to your Rights

In circumstances where your employer asks you to sign a Compromise Agreement, please be aware that you should obtain independent legal advice. Independent legal advice means going to a firm of Employment Specialists and obtaining their advice. Normally what happens in these circumstances is the employer will pay for that advice by an independent specialist in order for the Compromise Agreement to be completed. Therefore, it is unlikely that you as the employee would be required to pay for the lawyer to give you the advice.

The firm of Solicitors should not have any conflict or business with the employer.

The Tax position in relation to Compromise Agreements is fairly complex but suffice to give some general guidance on it, you should always refer to a Tax specialist for specific advice. The Tax position is that the first £30,000.00 payment is normally free of Tax.

The site author/owner has endeavoured to give clear information to benefit the reader. The information is no substitute for obtaining specific advice about any claim you may have from a person qualified to give it. The examples, and circumstances described etc bear no relation to any actual case and any resemblance to real circumstances is purely accidental and unintentional. The site author/owner accepts no liability for any mistake, error or inconsistency in the text and the reader should ALWAYS OBTAIN specific advice about his/her own situation. In order to assist the reader, you can give your details so that a qualified advisor can call you free of charge and assist you further via CLAIM EVALUATOR