What is the difference between voluntary redundancy and a compromise agreement?

The differences between compromise agreements (CA) and voluntary redundancy (VR) are subtle enough that you will see them described on various internet sites in more or less the same breath. The main differences are:

  • in the legal intent. The primary purpose of a CA is to head off potential legal liability when an employee leaves the organisation as a result of some form of dispute, whereas VR is offered as an entirely voluntary scheme to encourage one or more employees to leave the organisation. The wording covering future legal challenges, however, may actually be very similar between the two in the legal requirements the agreement must meet in order to be valid. Specifically, a compromise agreement is only valid if:
    – It’s in writing
    – It relates to a particular complaint or proceedings
    – The employee has received independent legal advice from a relevant adviser as to the terms and effect of the proposed agreement
    – The adviser has insurance or an indemnity covering the risk of a claim by the claimant in respect of loss arising as a result of the advice
    – It identifies the adviser
    – It states that the conditions relating to compromise agreements under the relevant act or regulations are satisfied.
  • in the way the payment is calculated. A CA is negotiated based on what you might reasonably receive from a tribunal, while a VR usually involves a pre-determined monetary incentive to leave
  • in the wording – this varies, but a CA may include a ‘recital’ which sets out the situation which led to the termination, or it may simply say ‘by reason of redundancy’ – or it may say nothing at all about why the termination is happening. A voluntary redundancy will say clearly that this is what it is.