A compromise agreement is a legally binding agreement that follows your employment being terminated. Ordinarily it will provide for a severance payment by your employer and in exchange you will agree not to refer any claim you may have to an employment tribunal.
It is also normal for the agreement to deal with the notice element in your contract of employment and may provide for a payment in lieu of this. The use of compromise agreements by employers is becoming increasingly commonplace as it is a mutually convenient arrangement for both parties by preventing possible future complaints being referred to a tribunal, especially in redundancy situations, but also ensuring that the employee receives fair compensation for their employment ending.
Compromise agreements are recognised by statute and are the only way a claim can be legally dealt with without having to issue proceedings in an employment tribunal. This is because Compromise Agreements are an exception to the rule that an individual cannot contract out of his or her employment rights.
You must have the compromise agreement explained by an independent solicitor before the agreement becomes binding. The solicitor must also sign the agreement to confirm that the appropriate advice about this has been provided to you. It is normal practice for your employer to offer a contribution towards the employee's legal fees and this contribution is quite often a full payment of the employee's legal fees.
Compensation received under a compromise agreement can often be paid tax-free up to £30,000.