Compromise Agreements in Northern Ireland

Who this guide is for

Employees in Northern Ireland who have been offered an agreement to settle a claim against their employer, often with a payment, and want to know what makes it binding and how the money is taxed.

What this guide does not cover

• Work in England, Wales or Scotland: see the England, Wales and Scotland guide.
• Whether the amount you have been offered is fair. That depends on the claims you would give up, and advising you on it is the independent adviser's job.
• Whether you have a claim in the first place: use the employee rights checker.
• Settling discrimination claims. Northern Ireland's discrimination laws have their own rules for these agreements: ask the LRA or the Equality Commission for Northern Ireland.
• How long you should get to consider an offer, whether settlement talks can be used as evidence, confidentiality clauses, which claims cannot be settled, and whether an LRA conciliated agreement needs independent advice. This guide does not cover these: ask the Labour Relations Agency (LRA) or a solicitor.

The questions that decide the answer

1. Has your employment ended, or when will it end? The date of the act you would complain about starts the tribunal time limit, and settlement talks do not stop it.
2. Which claims would you be giving up? Your adviser must explain the effect on your rights. Discrimination claims have their own rules.
3. Have you told the LRA yet? Early conciliation through the LRA is another way to settle, and it pauses the time limit.
4. What is the money made up of? Notice pay, earned pay and compensation for losing your job are taxed differently.

"What makes it legally binding?"

Under Article 245 of the Employment Rights (Northern Ireland) Order 1996, the conditions for a compromise agreement are:

• It must be in writing.
• It must relate to the particular proceedings.
• You must have received advice from a relevant independent adviser on the terms and effect of the proposed agreement, and in particular its effect on your ability to pursue your rights before an industrial tribunal.
• When the adviser gives the advice, there must be insurance, or an indemnity for members of a profession or professional body, covering the risk of a claim by you for loss caused by the advice.
• The agreement must identify the adviser.
• The agreement must state that the conditions regulating compromise agreements are satisfied.

"Who can advise me?"

A relevant independent adviser can be a qualified lawyer, an officer, official, employee or member of an independent trade union certified in writing by the union as competent and authorised to advise, or someone who works at an advice centre (as an employee or a volunteer) certified in writing by the centre as competent and authorised to advise.

"Is this the same as a settlement agreement?"

In England, Wales and Scotland compromise agreements were renamed settlement agreements. Their rules on confidential settlement talks (section 111A of the Employment Rights Act 1996) and the Acas Code of Practice on settlement agreements are Great Britain law and guidance. Do not rely on them in Northern Ireland: ask the LRA.

"How much of it is taxed?"

You do not usually pay tax on the first combined £30,000 of statutory redundancy pay, additional severance or enhanced redundancy pay, and non-cash benefits such as company property you keep. You pay tax on any amount over a combined total of £30,000.

If you do not work your full notice period, you pay tax and National Insurance on the part of your termination payment equal to what you would have earned if you had worked it. This can include a payment in lieu of notice (PILON), pay during gardening leave, and part of any severance pay, known as post-employment notice pay (PENP). Your employer works out the PENP. It does not apply to statutory redundancy pay.

Wages and holiday pay you have already earned are taxed as normal.

You do not pay tax or National Insurance on legal costs your employer pays directly to your solicitor as part of the settlement.

"Can the LRA help us settle?"

Before most claims you must notify the Labour Relations Agency (LRA). Early conciliation through the LRA is free and voluntary, and can lead to a conciliated agreement without a tribunal. You can't go to a tribunal without at least considering it, unless you are exempt.

If you notify the LRA within your time limit, the clock stops for up to 1 calendar month while conciliation takes place, plus up to 14 more days if both sides agree.

Deadlines you must meet

• Most claims, including unfair dismissal, must be made within 3 months less 1 day.
• Negotiating a compromise agreement does not pause this. Tell the LRA within your time limit, so that the clock stops while early conciliation runs.
• Check your exact date with the LRA.

Traps

• Northern Ireland uses compromise agreements under Article 245, not Great Britain's settlement agreement rules.
• An agreement that does not meet the Article 245 conditions does not stop you making those claims.
• The £30,000 is not tax free on everything. Notice pay, pay during gardening leave and pay already earned are taxed.
• Compromise agreement talks do not stop the tribunal clock.
• Do not use Great Britain rules here.