A compromise agreement is a legally binding agreement following the termination of an employee's employment.

A compromise agreement usually provides payment of a lump sum by the employer in return for the employee's agreement that they will not pursue a claim in the Employment Tribunal.

The compromise agreement will often deal with the notice element of an employee's contract of employment and may provide for 'payment in lieu'.

A compromise agreement must be explained to an employee by an independent solicitor before the agreement becomes binding. The agreement normally provides that the employer will pay for the employee to receive this advice.

The solicitor giving the advice must also sign the agreement and certify that the appropriate advice has been given.

There is no legal obligation to sign the compromise agreement if an employee is not happy with its contents. This is a decision that should not be taken lightly.

If an employee is unhappy with the agreement they should speak to their solicitor who will be able to advise the employee whether to negotiate improvements or not.

The signing of a compromise agreement does not amount to a dismissal, the employment will be neutrally terminated.

It is not unusual for a compromise agreement to include a confidentiality clause, whereby an employee is not permitted to disclose the sum they have received and not to reveal information unless specified in the agreement.