Compromise agreement

In the United Kingdom, a compromise agreement is a specific type of contract, regulated by statute, between an employer and its employee (or ex-employee) under which the employee receives a negotiated financial sum in exchange for agreeing that he or she will have no further claim against the employer as a result of any breach of a statutory obligation by the employer. A compromise agreement is generally used where an employee has been dismissed.

Compromise agreements are the only means whereby an employee can waive statutory claims such as unfair dismissal, discrimination or redundancy. The agreement will only be valid where (i) it is in writing and (ii) the employee has received independent advice from a solicitor who has professional indemnity insurance. An employee cannot compromise potential future claims, though claims that have already arisen, unknown to the employee, can be waived.

In practice, a compromise agreements will also contain a waiver of any claim for breach of contract as well as statutory claims, though such a waiver does not need to satisfy the same requirements in order to be valid.

The advantage for the employer is that they are able to draw a line under an employee's departure and feel protected from future claims. The advantage for the employee is the financial sum received in return.