The Importance of Independent Advice on Compromise Agreements

One of the major benefits for both employees (LINK TO EMPLOYEES PAGE) and employers (LINK TO EMPLOYERS PAGE) of entering into a compromise agreement is that the termination payment is accepted in full and final settlement and neither party can thereafter sue the other.


However, one of the key requirements for a valid compromise agreement is that the Employee gets proper independent legal advice from an independent solicitor. Section 203 of The Employment Rights Act 1996 is quite specific. The compromise agreement must identify the independent adviser. The Employee must have received legal advice from a relevant independent adviser on the effect of the compromise agreement and the independent adviser must have a current contract of professional indemnity insurance, covering the risk of a claim against them by the Employee in respect of the advice. Further, the lawyer must certify that his firm is not acting for the Employer.


So what if the Employer ‘recommends’ the solicitor to which the Employee (LINK TO EMPLOYEES PAGE) should go for advice on the compromise agreement or agrees only to pay the legal costs if the Employee uses that particular firm? What if that firm gets a constant stream of instructions on compromise agreements from the same Employer and is paid between £350 to £950 each time? Can such a firm really be regarded as ‘independent’?


Such ‘recommended’ firms may well be reluctant to negotiate on the Employee’s behalf and too ready to accept that the first offer made.


Employers (link to EMPLOYERS PAGE)should therefore be very wary of providing Employees with a recommended firm. At the very least the Employer should provide the Employee with a list of firms that can advise on compromise agreements and the list should be a long list. There should be at least 10 firms on the recommended list. The Employer should not say that they will only pay for the legal advice if given by either one or two named law firms and the Employee should always be told that they are free to take advice from any firm of their choosing. The practice of ‘bulk advice’ being given to departing Employees at the Employers premises on an appointed day is also likely to call into question whether the employee has truly been given independent legal advice as the law requires.


Employers should monitor how dependent one particular firm may become on the income generated by referred compromise agreements. This is particularly important for large Employers, where one law firm is used regularly and is earning substantial fees. Any law firm advising on a compromise agreement ultimately needs to be free to recommend that the Employee sue their Employer. If a law firm is regularly in receipt of a substantial fee income from that Employer they may well be reluctant to “rock the boat” by recommending further negotiations or litigation.


If the Employer tries too hard to control the manner in which the Employee receives independent advice, the compromise agreements may well be totally unenforceable and the Employer may find himself embroiled in litigation that he sought so hard to avoid.


So always make sure that the advice that you get is truly independent.


Click here to get independent legal advice on your Compromise Agreement

Compromise Agreement Advice by Silverman Sherliker, Solicitors.

Regulated by the Solicitors Regulation Authority