1  What is a compromise agreement?

The basis of a compromise agreement is that the employer offers the employee financial compensation and, in turn, by signing the agreement, the employee gives up virtually all employment related rights.

2  What will I be compensated for?

Usually the employee will be compensated for notice pay and an additional sum on top. There is a tax free band of £30k provided the redundancy payment is a genuine one for compensation of loss of employment. Notice pay is usually taxed, depending on the circumstances.  All employee benefits should be considered in negotiating the agreement including bonuses, accrued holiday, car allowance, medical insurance, pension and share options. Taxation advice regarding any payment made under a compromise agreement should also be sought to maximise its tax efficiency.

3   Is my redundancy selection fair?

Your employer must usually place you in a selection pool and undertake an individual consultation process. Depending on the numbers of redundancies there may be further collective consultation with trade unions or employee representatives (which must be elected) of either 30 or 90 days. Key areas to look out for are whether the selection criteria are fair and objective and whether it can be argued the redundancy was based on sex, age, race, pregnancy/maternity, disability or any other type of discrimination, as this could lead to potential claims against the employer. Any potential claims which can be argued by a solicitor may lead to an increase in the settlement.

4   How do I know that the financial compensation I am being offered is appropriate?

The employee must have received advice from a relevant independent adviser (usually a solicitor) as to the terms and effect of the proposed compromise agreement, and, in particular, its effect on the individual's ability to pursue his or her rights before an Employment Tribunal.  Through a legal and commercial analysis of the agreement, a solicitor may be in a position to improve the settlement through negotiation.

5  Should I sign a compromise agreement?

Be clear about your objectives before signing a compromise agreement and consider whether the amount being offered will compensate you for any period of unemployment. However, the sum offered is often calculated by what the employer thinks it may be liable for, not what the employee feels he or she needs or deserves. The agreement must always be in writing and must relate to the specific employment claims.  It must also state and comply with all the employment law conditions otherwise the agreement will be invalid.  A qualified adviser such as a solicitor specialising in this area of employment law will be able to provide the best possible legal advice.

Deborah Casale is a partner at employment law firm Gannons.