FAQs about Compromise Agreements


What is a Compromise Agreement?

A Compromise Agreement is a contractually binding agreement which is very similar to a typical contract. Your employer will offer you a certain sum of money in exchange for agreeing not to pursue a claim in court for reasons relating to unfair dismissal/wrongful dismissal/ redundancy.

There are restrictions on certain types of claims the employer cannot ask you to contract out of.  Your employer cannot ask you to contract out of claiming for causing death or injury. The employer is also not able to contract out of awarding pension rights due to you.

In what circumstances is my employer likely to offer me a Compromise Agreement?

Your employer is most likely to offer you a Compromise Agreement if there is a dispute or grievance made against them, you are unable to work for medical reasons or after maternity leave you decide you do not want to return to work.

The main reason why a compromise agreement may be offered is in relation to redundancy arrangements. It will be awarded in addition to your redundancy package.

Why is my employer eager for me to agree to a Compromise Agreement?

Employers want to offer these types of arrangement because it gives them a sense of certainty that they will not have to deal with legal claims somewhere down the line after your employment contract has ceased.

The employer does not gain any benefit from winning or losing against an Employment Tribunal claim because of a general ‘no costs’ rule. To avoid needlessly paying for legal costs the Compromise payout is a lot more efficient.

What are the advantages if I sign a compromise agreement?

You will receive an additional compensatory amount in addition to standard contractual notice payments. In addition these payments up to £30,000 may well be tax free.

The chances of success are much higher for an Employer rather than an employee in the Employment Tribunals. Suing your employer is risky, time-consuming and expensive.

Once the agreement has been signed the employee will be allowed to seek another job immediately.

Can I approach my employer if I want to enter into a compromise agreement?

Yes. You should be careful and consult a solicitor before approaching your employer. You must also take into consideration that once a compromise agreement has been signed there is no real chance of developing the professional relationship further as any element of trust of confidence is normally ended.

What is the typical amount a compromise agreement could award?

This depends on the length of service, potential underlying claims, the employee’s contractual notice period and untaken holiday pay.

An employer will not normally offer more than the equivalent of 4 months’ salary for legal and tactical reasons.

What should I be wary of when deciding whether to agree on a compromise agreement?

Seek advice on how to be paid your compromise amount in the mot tax efficient way possible. Anything under £30,000 will not be taxable.

Look out for the small print- the agreement may ask you to give up benefits such as medical insurance or commission.

There may be restrictions on what type of work you can take up when you leave.

If you found this content useful, more compromise agreement information for Ealing can be found by clicking the link.