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Should you sign a compromise agreement?

Compromise agreements are a tool for employers and employees to part ways on agreed terms. An employer can suggest them during the termination or redundancy process, for example, or an employee is also within their right to suggest a compromise agreement – it’s just typically less common.

Once signed, it means both parties have agreed to the terms of the agreement and the nature in which their business relationship will end. It also means employees have agreed not to bring a claim against their employer following their departure from the company, either in court or through an Employment Tribunal (some exceptions can apply, though, which we’ll briefly cover). That being said, there should be a fair level of compensation on the table given employees are asked to forfeit their right to pursue a claim.

A lot of the time, the end of the professional relationship will mean a ‘clean break’, but sometimes there may be ongoing obligations under the terms of the compromise agreement. We walk you through some of the key things to consider before you sign on the dotted line – or, indeed, choose not to sign at all.

What will the compromise agreement cover?

Contrary to popular misconception, compromise agreements aren’t always about squeezing as much money as possible out of an employer. The ultimate outcome of each compromise agreement will vary, depending on the circumstances in which a compromise agreement is being considered, the strength of the case and what role and value the employee had within the business.

The only things all compromise agreements must have in common to be legally valid is that the agreement is in writing, it must be about a particular issue (termination or redundancy, for example), an employee must have sought independent legal advice, there should be a statement from the independent legal advisor that they have given the employee advice and that they are qualified and covered by insurance, and the agreement must note that it meets the statutory provisions relating to compromise agreements. Beyond these standard and necessary conditions and inclusions, the terms set out in each agreement should be considered on their own merits.

Beyond this, generally speaking, the terms of a compromise agreement will cover any separation payment, obligations or duties that must be carried out by the employer (such as providing a reference) and any special clauses.

Be aware of any special clauses

While these may be known as ‘special’ clauses, the reality is that these are now very commonly included in compromise agreements. Be sure to check through the finer details of the agreement to see if any of the following clauses are suggested.

Confidentiality: You will not be able to discuss or disclose any sensitive business information, which can include things like strategies, particular documents and unique processes, for example.

  • Non-solicitation: You will be prohibited from making contact with any of your employer’s other employees, clients and vendors for a set period of time after your employment ends.
  • Non-dealership: You are not allowed to encourage any of your ‘loyal’ clients to follow you to your next venture or have any new business dealings with your employer’s existing clients.
  • Non-compete: This clause prohibits employees from making a direct and targeted approach for business against their employer, either under a new employer arrangement or in their own capacity. Any such clause will only be valid if it doesn’t go so far as to become an unenforceable restraint on trade.

What if my employer has suggested having a ‘protected conversation’?

Negotiations about compromise agreements will always be started with “without prejudice” as a way of keeping the conversations private and out of court of an Employment Tribunal should the negotiations break down. This rule will only apply in the instance of a genuine dispute between the employer and employee – in other words, it won’t apply if the negotiations are a result of poor performance by the employee.

It will also not be possible for an employer to hide behind ‘protected conversations’ if there is a claim for discrimination, victimisation or constructive dismissal by the employee. This may apply, for instance, if an employee’s lawful rights have been interfered with because an employer placed undue pressure on them to sign the compromise agreement. If there is a genuine claim that can be put before a court or Employment Tribunal, an employee will maintain their right to refer to any related conversations about their claim, which means compromise agreement conversations could be used as evidence against a company.

Can I refuse to sign?

You are under no obligation to sign a compromise agreement and should only sign if you are happy with all its terms. Basically, you won’t want to sign a compromise agreement if you do not feel you are being properly or fairly compensated – either financially or with the duties you would like your employer to perform. Take on board any feedback offered to you as part of your obligatory independent legal advice and remember, until an agreement is signed there is an opportunity to negotiate.

How to reach a mutual understanding

It’s important to again highlight that a compromise agreement will not be legally valid unless you have received independent legal advice. This is a core protection for employees who are usually in a weaker negotiating position than that of their employer. Because of this, it is common for employers to contribute to the cost of an employee’s legal advice.

Take advantage of this offer and speak with an experienced and specialised employment solicitor at QualitySolicitors Hopley GMA (incorporating Keene & Kelly and Cyril Jones & Co). We offer practical employment law advice and will help you reach a fair agreement.

Contact our employment solicitors in Wrexham (01978 884 125) and Mold (01978 884 125) today.

Posted in: Employment law

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