making sense of employment law
compromise agreements for employers
Compromise Agreements are legally binding agreements between an employer and an employee. It is usual for this to be entered into either shortly before or after termination of an employee’s employment. An employment compromise agreement allows for a “clean break” of the employment relationship wherein the employee agrees to waive their right to bring claims in return for the agreed sum of compensation.
From the employer’s perspective, it is necessary to identify where the risk for the claim may lie and assess the potential liability of the company before arriving at an appropriate figure to offer to the employee. It may also be wise to use a compromise agreement where an ex gratia payment is being made as in the case of redundancy.
It is usual for an employer to provide a contribution towards the employee’s legal costs. This will range from £200 plus VAT on a straightforward case, but may be higher where there are complex issues which an employee’s solicitor may have to advise on.
We advise as to the tax implications of the agreement and ensure that all references that have to be provided are both accurate and legally compliant.
timing of providing a compromise agreement
There is case law to show that if a Compromise Agreement is introduced, particularly in relation to any discrimination claim, the contents of such a Compromise Agreement and the way in which it has been given to the employee may become admissible evidence as part of any Tribunal proceedings. It is therefore essential that advice is obtained prior to “without prejudice” negotiations commencing so that we can advise on the risks and timing of the introduction of any Compromise Agreement.
compromise agreements for employees
It is a legal requirement that an employee must receive independent legal advice before entering into a Compromise Agreement.
The employer will usually pay a contribution towards the cost of the employee taking advice, which is usually limited to a fixed sum. In most cases where the issues are straightforward, the contribution should be enough to cover all costs. However, where there is a potential claim, for example unfair dismissal or discrimination, then it is necessary for us to assess the potential value of all such claims in order to advise as to whether the money offered as compensation is a fair settlement sum.
In some cases it may be necessary for us to negotiate on the employee’s behalf in order to increase the package offered. This can be paid for either by us negotiating a higher contribution from the employer , a private client arrangement or alternatively under a no-win no-fee agreement where we would take a percentage of any increase that we secure to the total package - this is called a Contingency Agreement, or more commonly a “no-win,no-fee” agreement.
Other terms that we can negotiate are an agreed reference attached to the Compromise Agreement, leaving announcement, and provisions for payment to be made directly into pension funds, so as to ensure the way in which the payment is made is tax efficient and does not contravene any of the Inland Revenue Regulations.
want to talk to us?
If you would like to discuss the law in relation to Compromise Agreements for employers or employees in further detail, please email Fiona Martin or phone 01273 609911.