Compromise agreements – when should you seek to negotiate the agreement?

Redmans Solicitors
August 8, 2012

Compromise agreements can be potentially tricky and daunting for employees. They generally mark a distinct change in their life (as they often terminate the contract of employment), are contentious and are written in “legalese”. As compromise agreements are so important to employees it’s understandable that they may want to negotiate some terms of the agreement in their favour, such as the value of the “settlement sum” (the sum that’s being paid to the employee). This post seeks to introduce employees to what compromise agreements are, what the terms of the agreement may be, what they should seek to negotiate in a compromise agreement, and when it’s appropriate to negotiate the terms of a compromise agreement (and conversely when it’s not). This post will therefore address the following issues:

What is a compromise agreement?
What’s important in a compromise agreement?
What should you seek to negotiate in a compromise agreement?
When should you seek to negotiate the terms of a compromise agreement?

What is a compromise agreement?

A compromise agreement seeks to settle claims in circumstances where an employee may have a claim against their employer. For example, they may have an unfair dismissal claim. The entering into a compromise agreement will waive the employee’s right to make a claim against their employer in return for the payment of a sum of compensation. Further, the compromise agreement may (and quite often does) entail the termination of the employee’s contract of employment with the employer.

What’s important in a compromise agreement?

Normally, the most important issue to an employee in a compromise agreement is “how much will I be paid for entering into the compromise agreement?”. This is an understandable consideration and it’s also understandable that employees want to try and obtain as much money from their employer in return for signing the agreement – they are, after all, probably going to be without an income for a number of weeks, possibly months.

Compensation to be paid – how much are you being paid? If this sufficient to warrant you waiving your rights to seek to enforce your legal rights against your employer?
Contractual benefits (healthcare etc) – are you entitled to use certain contractual benefits after the termination of your employment? For how long?
Reference – are you being provided with a reference as part of the compromise agreement?

What should you seek to negotiate in a compromise agreement?

The three points listed above are normally the issues that employees highlight as being most important to them. However, this doesn’t necessarily always mean that they should always be negotiated, as we will see below.

When should you seek to negotiate the terms of a compromise agreement?

The issue of when you should seek to negotiate a compromise agreement (effectively make a counter-offer) depends on a range of circumstances, including:

The nature of the employer’s solicitor. Are they generally aggressive in their approach?
The nature of the employer. Do they enjoy confrontation? Are they likely to be reasonable?
An evaluation of the factual circumstances. What circumstances have led to the situation that you’re in now?
An evaluation of the strength of any claims you may have against your employer. How likely would it be that you’d succeed in your claims?
The value of the settlement sum that you’re being offered. It’s normal to be offered 1 to 4 months compensation, depending on the nature of the economy and your employment history (i.e. how long it’s going to take you to find another job). It’s important that you maintain objectivity on how much you’re going to get for your compromise agreement – if you rock the boat too much you may end up drowning the agreement

Redmans Solicitors are London employment lawyers that offer compromise agreement advice and employment law advice for employers and employees