A compromise agreement, also known as a settlement agreement, is a legally binding agreement between an employer and employee that sets out the terms of an employee’s departure from the company. In exchange for the employee agreeing not to bring any claims against the employer, the employer will offer a sum of money as compensation.
The purpose of the agreement is to provide a clean break for both parties, with the employee receiving a financial settlement and the employer being protected from any potential legal action. The agreement can include various clauses, such as non-disclosure, non-competition and non-disparagement clauses.
Compromise agreements are often used in situations where an employee is being made redundant or where there are concerns about the employee’s performance or conduct. By offering a settlement, the employee is incentivised to leave the company without a fuss, and the employer can avoid the cost and uncertainty of a potential legal dispute.
It’s important to note that a compromise agreement can only be entered into voluntarily by both parties and only after the employee has received independent legal advice. The employee will usually have a minimum of 7 days to consider the terms of the agreement and seek legal advice before signing.
For employers, it’s crucial to ensure that all the terms of the agreement are fair and reasonable, as any unfair terms can be challenged in a court of law. It’s also important to ensure that the employee fully understands the terms of the agreement and the implications of signing it.
In summary, a compromise agreement is a legally binding agreement between an employer and employee that provides a clean break for both parties. It’s a useful tool for managing the exit of an employee and avoiding potential legal disputes, but it’s important to ensure that all the terms are fair and that the employee fully understands the implications of signing.