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
- 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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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.