Compromise agreements

A compromise agreement is a legally binding agreement that specifically excludes an employee’s right to make any claim (with certain exceptions) against his employer in an Employment Tribunal in respect of his employment or its termination, in return for which the employee will receive a compensation payment in “full and final” settlement of any such claims.

The agreement also contains a number of usual terms, including: 

• A full breakdown of any other payments the employee is entitled to receive; for example, wages, untaken holiday pay, bonuses, benefits, expenses, any payment in lieu of notice etc.
• A Restraint of Trade clause - this confirms the post-termination restrictive covenants in the employee’s contract of employment, and may impose new such covenants. An employee needs to ensure he is satisfied with these restrictions since his ability to work for a competitor and/or service old clients and customers could be hampered.
• References – although there is no legal obligation on an employer to provide a reference, it is possible to incorporate one. Any reference that is provided should be true, accurate and fair. If not, the employer may be guilty of misrepresentation.
• A Confidentiality clause – this relates primarily to the terms of the agreement, but may also to the employer’s trade secrets and business affairs.
• A Non-Derogatory clause - this prevents the employee (and the employer) from making derogatory comments against the other.
• The return of any property etc. belonging to the employer.
• Legal costs – the employer usually agrees to pay the employee’s legal costs.