A compromise agreement, or settlement agreement as it is also called, is a legal document that sets out the terms of settlement between an employer and employee when an employment relationship comes to an end.
What does this mean for your employees?
Usually an employee agrees to settle in exchange for certain settlement terms and in doing so the employee agrees not to bring any future claim against the employer.
This is why an employee must receive legal advice before signing a compromise agreement to ensure that they have understood their position in law before waiving any rights under the compromise agreement.
Common themes of a compromise agreement
Whilst each settlement agreement is tailored to the individual circumstances and a result of a negotiation, there are some common themes to watch out for.
- The scope of the settlement should be clear i.e. which claims are being settled and which are not. The usual position is that all claims are to be settled, so be mindful if there are any future claims that ideally would be carved out e.g. future rights in relation to a shareholding.
- There are usually tight confidentiality clauses that prevent employees from discussing the existence of and contents of a compromise agreement, except with certain named persons such as a lawyer and close family members.
- Whether and to what extent tax is due under the agreement. In Jersey the first £50,000 of a compensation figure is tax free.
- The terms of any future reference. These tend to be typically quite generic and simple state a job title and length of service.
- It is important to check the original contract of employment for any restrictive covenants, these are clauses that restrict the employee post-employment e.g. for working for a competitor for a period of time.
- Last but by no means least, the compensation figure needs to be checked against statutory and contractual rights.
If you require advice on a compromise agreement, please contact us on info@ardentchambers.com
