Employment Law

Information Required When Drafting a Compromise Agreement

A compromise agreement, if negotiated properly, could be an effective measure to make sure an employee is appropriately compensated for employment termination. There would be no more need to file a formal claim against an employer, a measure that could be both expensive and time-consuming. However, both the employer and the employee may realize that drafting a suitable compromise agreement is not an easy task. The document should be drafted by an employment solicitor or an employment law specialist in behalf of the employer. The employee would need to hire an independent solicitor to review the content of the agreement before signing the document.

Employers and employees could be properly guided if they would be made aware of the basic requirements in any compromise agreement. Here is a practical checklist of the required information when drafting the agreement.

The basic and general information are logically significant and are surely not forgotten. These include the name of the employer (including the business address and the registered office), the proposed date of employment termination, the date of employment contract or service agreement, the employee’s job title, the age, the date of service commencement, and notice period (or term of employment). The draft should also plot history of an employee’s employment, including details of performance reviews, promotions, re-organizations, and all other data that may be relevant to the termination.

Financial data cited in the compromise agreement include current annual salary and commission or bonus arrangements between the employee and the employer. The current salary should be gross per year. It may also state the net monthly take-home pay. The next review date of the salary and any other contractual obligations to a salary increase should also be stated. For bonus and commission arrangements, the compromise agreement should mention the details of commission and/or bonus payments in the last three years, the expected commission and/or bonus payment for the current year, and plans or scheme rules that govern such payments.

The benefits covered and discussed in compromise agreements usually comprise of motor cars, medical insurance, pension, and life assurance. The motor car provision should cite the value of car benefit and provisions for fuel and private mileage. The medical insurance includes the type of policy and the provider, the cost to the employer, and details about any permanent health insurance. Pension terms include final salary, amount of contributions made by the employer and the employee, details of benefits, scheme’s actuary, and normal retirement date. Life assurance should describe the type of policy, the provider, and the overall cost to the employer.

Other provisions regarding benefits should also be described in the compromise agreement. These include data about share options, mitigation of loss, and accrued holiday pay. There are even statutory or legal criteria that should be met. For further guidance of all important legal elements of a compromise agreement, you should seek the advice of a third-party employment solicitor, which should also act as a third-party signatory for the agreement as required by UK employment laws.