GUEST COMMENT: How to handle compromise agreements

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If you lose your job in an investment bank, one of the first things you're likely to come across is a compromise agreement. For those who are unfamiliar with the term, a compromise agreement is recognised by statute and is the only way employers can ensure you validly 'contract out' of bringing any future claim against them - ie, once you've signed one, forget any claims of discrimination or unfair dismissal.

A compromise agreement is usually signed following the termination of your employment, or as part of the process that brings it to an end. It usually provides for a severance payment, in return for which you agree not to pursue any claims in an employment tribunal. For it to be valid, you must take independent advice from a lawyer.

No comeback

So far, so good, except banks are now increasingly using compromise agreements as a mechanism for preventing possible future complaints to a tribunal. Even where a bank is confident that it has followed a fair process, it will prefer the employee to sign a compromise agreement to ensure there is no comeback afterwards. This can apply even when you are only receiving a redundancy payment in line with the bank's own policy. In cases where there is a background of dispute or a breakdown in the relationship with an employee, a bank is likely to insist an agreement is entered into, subject of course to the terms of departure having been first agreed.

Simple, standard terms

So, should you be worried about signing away your rights in this way? Whilst it is the case that

compromise agreements can be written in very legalistic language and can refer to sections of Acts and Regulations which you may never have heard of, most are fairly standard and in simple terms mean you cannot claim under any statute. As long as the severance pay you are receiving is properly reflected in the agreement, and there are no unusual onerous terms, you should not be too worried.

In fact, being presented with a compromise agreement can be a good thing. Not only is there certainty of payment within an agreed timescale (usually 14 days from the date of termination or the return of the signed agreement), but the agreement will confirm the first 30k if a redundancy/severance payment is tax free. It is useful to have this recorded in a legal document for Revenue purposes. You also get the chance to have a reference attached to the agreement - which binds the bank when references are requested from future employers. This is very useful where an employee may have left under a cloud and is in danger of receiving a negative reference after leaving the bank.

Enhanced payment?

Most significantly, however, a compromise agreement will give a good employment laywer an opportunity to challenge the amount being offered under the agreement and negotiate an increase. Although banks do not operate an 'open cheque policy', they can be receptive to a request for an enhanced payment if there is a reasoned argument properly put.

The incentive for banks, of course, is that they will know there is no 'coming back for more' by the employee after the agreement is signed. But watch out. There may be some sneaky clauses in there - such as the introduction of post termination restrictions that did not form part of your original contract of employment. This could take you out of the market for many months after you have left. That is why you need to chose your legal adviser carefully!

Philip Landau is a partner at London law firm Landau Zeffert Weir. Feel free to contact him on or 020 7357 9494 for a free consultation on this or any other employment law issue.