Staffordshire Solicitors | Solicitors in Stafford and Rugeley - Hand Morgan and Owen - Employees risk losing out under compromise agreements

EMPLOYEES RISK LOSING OUT UNDER COMPROMISE AGREEMENTS

A recession-fuelled increase in the use of compromise agreements – where an employee agrees not to make a claim against their employer in return for a financial settlement – could deprive employees of the best exit deal, warns Nigel Pepper.

With businesses making redundancies in response to the credit crisis the use of compromise agreements in relation to redundancies, unfair dismissal or unlawful discrimination is ensuring businesses can avoid future claims by former employees.

Agreements offered to out-going employees might not offer them the best package. Hence it is essential that employees seek advice about what they are agreeing to. In fact it is a legal requirement that before signing such an agreement, employees have received independent advice. Employers will typically pay or contribute towards the legal expenses incurred in receiving the legal advice on the agreement.

Compromise agreements are an effective tool in ensuring both employer and employee can resolve an issue fairly. However, the agreements will usually emanate from the employer and employees should not take it as read that it is the best deal on the table.

Seeking the advice of a solicitor once the agreement is offered is essential. Without one, employees could be walking away with a settlement which is far from a compromise. A solicitor can negotiate on an employee’s behalf.

Unlike the majority of other advisers, solicitors are best placed to advise employees on such matters as the taxation implications arising from a settlement payment and how that payment could be structured in the most tax efficient way. It is what they are trained to do.

What seem like ‘attractive packages’ are offered to employees under the agreements, but a solicitor will have an understanding of what is fair for the employee.

What might appear to be a golden handshake of sorts might not be best for the employee, especially in the current job market. Four month’s pay might sound like a good offer, but if your notice period is three months, you are really only getting an extra month’s pay to leave quietly. With many people finding it difficult to find work at the moment, that might not last long. Using a solicitor can ensure other factors, such as length of service, can be taken into account in the settlement.

Rights and clauses

Compromise agreements typically include clauses that go far beyond the simple compromise of potential tribunal claims in respect of which a solicitor’s advice can be crucial.

Examples include, covenants in respect of not competing with the employer in the future; the return or retention of the employer’s equipment; the parties not making derogatory remarks against each other; the employee providing assistance to the employer, without remuneration, in the future.

While an employee can reasonably be expected to waive their rights in respect of claims they are currently aware of, such as redundancy payment or notice pay, they should not waive rights in respect of matters that could present themselves in respect of future pensions or personal injury claims.

For further information please contact Nigel Pepper or Patrick Nelson on 01785 211411.

28 October 2009

Disclaimer

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.

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