Letter to accompany compromise agreement

During all negotiations relating to compromise agreements, make sure they are marked “without prejudice”. Once you have negotiated a settlement with the employee in principle, you will need to draft an agreement and give it to them with a covering letter explaining the requirement that they seek independent legal advice in connection with its content.

The negotiation process

When you produce a draft Compromise Agreement for an employee to approve after having had a “without prejudice” meeting with them, you should give it with an appropriate covering letter. Use our letter, which must be clearly marked “without prejudice”, as should all further correspondence, so as to avoid disclosure of it should negotiations for settlement break down prior to signature of the agreement. It is usually you (as the employer), or your solicitors, who will produce the draft compromise agreement. However, there is no point in going to the time and expense of having an agreement drafted if you have not at least reached a settlement agreement in principle with your employee as part of your “without prejudice” negotiations. As the covering letter makes clear, the employee will then be required to take independent legal advice on the draft agreement - and it spells out the categories of people from whom the employee can take such independent advice so as to comply with the statutory requirements. Thereafter, this will usually result in a period of negotiation with the employee’s legal advisor until you agree on the terms of the draft agreement.

Subject to contract

Once the compromise agreement has been agreed, two copies are produced for signature. When signed by both parties, the agreement becomes legally binding and each party keeps one copy. You should make it clear that, until the compromise agreement is signed by all parties, no part of it is contractually binding, so ensure that you mark it “without prejudice” and “subject to contract” until the final, agreed version is ready for signature. It’s not unknown for new information to come to light during the conduct of negotiations with the result that you no longer wish to go ahead with the favourable settlement terms that you originally proposed!