Given the economic climate, we are seeing an increasing number of employees facing the prospect of redundancy. Jobs are being cut across all sectors- with the recent media coverage of job cuts announced in BAE Systems and the BBC. Businesses are tightening their proverbial belts and seemingly not a day has gone by in recent times without a company announcing its intention to downsize.

We have experience advising on employers on how to conduct a lawful redundancy programme and employees on the best route for them to take in difficult circumstances. We have recently had a number of enquiries from senior employees who have been faced with redundancy and we have been assisting them in their exit negotiations. We have a particular expertise in drafting and advising on Compromise Agreements.

A Compromise Agreement is a legally binding Agreement between an employer and an employee which operates following the termination of employment. The purpose of a Compromise Agreement is to provide certainty for both parties and is drawn up to reflect the result of negotiations.

An important element of the Compromise Agreement is that it is intended to be in full and final settlement of all claims which the employee may otherwise have against the employer. It may place restrictions on the employee once he has left the company; there may be a confidentiality clause; provision for garden leave and details regarding references. The Compromise Agreement will often detail what payment in lieu of notice the employee is entitled to should they not be required to work their notice period.

Most importantly from an employee’s perspective will often be the details of a termination payment by way of compensation for loss of employment, which HM Revenue & Customs have a discretion to allow to be paid to the Employee tax free up to limit of £30,000. Any excess will be subject to income tax in the usual way. Equally, any ex gratia or statutory redundancy payment (subject to the £30,000 limit) would be tax free.

From an employment law perspective, there are a number of formalities which must be adhered to in order to ensure the validity of a Compromise Agreement, including;

• It must be in writing and relate to the particular matter;
• The employee must seek independent legal advice on the terms of the Compromise Agreement;
• The Compromise Agreement must state the name of the advisor, who must have professional indemnity insurance cover;
• It must state expressly that the conditions regulating Compromise Agreements have been satisfied.

Although the Compromise Agreement may contain some standard clauses, it is important it is tailored to the individual circumstances in order to be effective. Sometimes the employee may also be a shareholder in the company and a director and in those circumstances the Compromise Agreement must look at all angles and perspectives of that individual’s involvement with the Company and a global settlement considered.

If you would like advice on a Compromise Agreement, contact Victoria Jackson today on 01244 354 762 or use our Contact Form.