Employment News
A Compromising Suggestion...
Compromise Agreements
There are times when an employer and an employee need to part ways. In the minefield of employment law, parting company without creating a potential liability is a tricky business. One method that can make it simpler is to use a "compromise agreement".
A compromise agreement is an agreement under which an employee and an employer can agree to compromise claims they may have, including dismissal-based claims. If drafted correctly it ensures certainty for both parties that all matters are at an end. It can therefore avoid the risks of litigation, negative publicity and the cost of engaging lawyers to represent your interests.
Mark Jones is a partner and joint head of Ormerods Solicitors' employment team.
He can be contacted on 020 8774 9507or mark.jones@ormerods.co.uk.
Acting Without a Compromise Agreement - Playing the Legal Lottery..
Businesses that rely upon an "understanding", a handshake or a formal written agreement that does not comply with the statutory requirements for a compromise agreement can still find themselves lawfully sued by an ex-employee. Coincidentally, on the day I am writing this, I have advised someone that he may sign the written agreement he has been given and accept his employer's offer of compensation safe in the knowledge that his intention and ability to sue them for unfair dismissal is unharmed by that agreement.
A fully valid agreement requires the employee to obtain independent legal advice and normally the employer will agree to meet those legal costs. However, it is usual for the employer to agree a cap and for any contribution to legal costs to be dependent upon the agreement actually being signed.
The employee's adviser can be a barrister solicitor or legal executive or certain trade union and advice centre representatives. Their role is to consider whether the agreement sufficiently protects and compensates the employee - this should never simply be a rubber-stamping exercise.
I also see a number of regular common mistakes within valid agreements, for example: the "kitchen sink" approach (which tries to compromise all possible claims without any real thought of the individual circumstances and may ironically provide less protection for an employer that an agreement covering a single issue of dispute); relying upon clauses that no reasonable Court will enforce; or incurring unnecessary tax liabilities and risks.
You benefit by Saving Money
A properly drafted agreement may benefit both parties by reducing potential tax and national insurance liabilities. Although it is normally possible to pay an employee up to £30,000 free of tax and NI as compensation for their dismissal not all payments below this amount can be paid gross, but, with proper planning, it may be possible to make proper tax efficient use of this allowance. In some circumstances sums additional to this £30,000 can also be paid without incurring liability for tax and NI.
Free Legal Advice
I have had the privilege of devising agreements relied upon by a number of FTSE 100 companies and "household names". For a free health-check on any compromise agreement your business currently uses or if you would like to discuss creating an agreement to suit your business, please contact me.
Contact Details
Mark Jones is a partner and joint head of Ormerods Solicitors' employment team. He can be contacted on 020 8774 9507 or mark.jones@ormerods.co.uk
Submitted by Mark Jones on Monday 9th March 2009