How can a compromise agreement go wrong?

by Direct 2 Lawyers on October 31, 2012

If you’ve entered into a compromise agreement or have been offered a compromise agreement then you’ll naturally be concerned with not only maximizing the “upside” of your compromise agreement (i.e. increasing the compensation to you) but also with minimizing the “downside” to the agreement (i.e. preventing the compromise agreement from being disadvantageous to you). This article deals with the second element – how to prevent a compromise agreement from “going wrong” and what you should be looking for in the compromise agreement. This will include an examination of:

  1. What you should be looking for in a compromise agreement
  2. Common pitfalls in a compromise agreement
  3. What can go wrong in a compromise agreement?

What you should be looking for in a compromise agreement

There are a number of critical issues that will be important to an employee in a compromise agreement. Among these (but not restricted to these) are included:

  1. The compensation you’ll receive under the compromise agreement
  2. The tax situation under the compromise agreement
  3. What restrictive covenants you’ll be subject to under the compromise agreement
  4. Whether you’re receiving a reference under the agreement
  5. The strength of your potential claims against your employer

If you fail to deal properly with any of the above issues then it can be potentially harmful to you – you want to achieve the best result out of your compromise agreement.

Common pitfalls in a compromise agreement

As this post on common compromise agreement pitfalls demonstrates, there are a huge variety of things that can go wrong in a compromise agreement. Among them are included (but not limited to):

  1. An “incorrect” settlement sum being specified
  2. An insufficient settlement sum is specified
  3. The tax in the compromise agreement not being dealt with properly
  4. You breach a restrictive covenant in some form
  5. There’s a failure to include a suitable reference in the agreement
  6. You’re too aggressive in your negotiation

All of the above issues can cause employees major problems with their compromise agreement. For example, if the tax position is complicated and is not dealt with in a properly tax-efficient manner then  you may become liable for more tax than is absolutely necessary. Further, if you fail to receive a sufficient sum to compromise your potential claims against your employer then you will obviously be losing out.

What can go wrong in a compromise agreement?

The short answer is: many things. An increasingly common problem which we see at Direct 2 Lawyers is employees not being given suitably competent advice by a relevant adviser (such as a barrister or compromise agreement solicitor) or the relevant adviser not being sufficiently independent of the employer (a highlighted problem is where an employer tells the employee that they have to go to a particular solicitor to receive their advice. If you’re told this then there’s a good chance that the solicitor you’re receiving advice from isn’t suitably independent (as they’ll be influenced by the commercial considerations relating to obtaining more work from the employer. However, the most common “pitfall” that occurs is when employees are too aggressive in their negotiations with their employer – the employer will only let themselves be “pushed around” a certain amount and the amount of money that can be obtained from a compromise agreement depends upon the seniority of the employee, the nature of the compromise agreement, the nature of the contract of employment, and the strength of the various claims that the employee has. It’s important to fight your corner but a rational decision must be arrived at.

If you have a question about your compromise agreement then you can ask a solicitor for compromise agreement advice

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