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Q: Please can you explain exactly what a compromise agreement is? A: A compromise agreement is an agreement between an employer and an employee prescribed by statute to prevent an employee from bringing a claim of unfair dismissal or discrimination arising out of their employment or the termination of their employment. The agreement will list any claims that could be brought against a company and it sets out a severance payment to be made by the employer in return for which the employee agrees not to pursue any of the claims they may have in the employment tribunal. It is a relatively simple way to resolve an employee’s claims without progressing to a full tribunal hearing, but it is important to note that before signing the agreement the employee is required to obtain independent legal advice from a solicitor who has indemnity insurance in place to ensure that he/she is fully aware of the legal rights being signed away. As a part of the process the solicitor will usually advise the employee what claims might arise on the termination of employment and their potential worth and then, in the light of that information, consider with the employee whether the sum offered is reasonable in the circumstances. (It is also usual for the employer to make a contribution towards the employee’s cost in obtaining legal advice. A compromise agreement will only be binding provided that the following conditions are satisfied:
  • The agreement is in writing and relates to a particular complaint
  • The employee has received advice from an identified independent advisor regarding the terms of the agreement and its effect on their ability to make a claim in an employment tribunal
  • Indemnity insurance is in place covering the risk of a claim by the employee in respect of loss arising from the advice given by the independent advisor
  • The agreement must state that the legal conditions that regulate the use of compromise agreement are satisfied.

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