Compromise Agreement: How Much Should I Pay?

There are three cash costs to signing a Compromise Agreement - how much to pay for a draft document, to your employee's adviser and, of course, the settlement itself. Each is discussed in turn below.  There are also the unquantifiable non-cash costs of management time taken up resolving the issue that could be better spent on some other activity. 

How much should I pay for my legal advice?

You can pay from nothing all the way up to thousands of pounds depending on your circumstances.

• At the bottom end you can pay a few pounds for a Word template and edit it yourself. This is the highest risk option. Disregarding the cost of your own time and given that the median award in an Employment Tribunal tends to be thousands of pounds it will be considered no further.

• You can use an automated template, such as our own, backed by a law firm. The prices here range from about £100 - £250. The upper range may include a lawyer looking over your draft before you receive it.

• To meet in person to discuss your situation, a regulated employment lawyer will expect to charge at least £500 to £1000 for a relatively straightforward case.

• If your case is complex then it would be prudent to negotiate fee rates with a reputable lawyer before starting on a potentially lengthy time-and-materials arrangement.

How much should I pay to my employee's advisor?

It is common practice for the employer to pay the employee's advisor's legal fees. Sums typically range from £250 to £500. It would be prudent to ensure that the maximum sum you are prepared to pay is documented in the Compromise Agreement itself.

How much should I pay to my employee?

Please see also our tips on tax issues and negotiations.

Given that the main objective of signing a Compromise Agreement is to avoid entanglement with the Employment Tribunal system, it is prudent to be, or at least to appear to be, verging on the generous. You can find statistics relating to Employment Tribunal payments here. Remember that any ET payment itself is likely to be dwarfed by the administrative and legal costs of the case.

Pay what you can agree you owe and ensure each component amount is individually itemised in the Agreement. For example SSP, SMP, holiday accrued etc.

When the amount owed is itself in dispute then consider using the £30,000 tax free ex gratia payment option to settle the difference.

Pay the sum of £100 to ensure post termination restrictions your employee's Employment Contract will continue to apply after the Termination Date.