Your compromise agreement the key issues by jolinmilioncherie


									Your compromise agreement – the key issues

                                                            Your compromise agreement – the key issues

Your rights          Compromise agreements are agreements governed by employment law statutes applicable in
                     the UK. The legal system is designed to protect you from signing away valuable employment
                     rights that you may not fully understand.

                     Employees have rights such as the right not to be discriminated against on protected grounds
                     and the right not to be unfairly dismissed. You cannot sign away these rights without first taking
                     independent legal advice so that these rights can be explained to you.

                     Our role as your legal advisers is to advise you on your employment rights before you sign them
                     away. We will be clear in explaining your rights and forthright in helping you to protect them.

                     We will also to advise you on the terms of the compromise agreement and the financial
                     settlement on offer. We understand the way in which employment tribunals calculate
                     compensation and can advise you on the amount of compensation a tribunal is likely to award.

What are the key issues?
Compensation         The most important aspect of any compromise agreement is the amount of compensation that
payment              the employer is prepared to agree to pay you to waive your legal rights.

                     When deciding whether or not the amount is sufficient to compensate you for the termination
                     of your employment, you need to understand how an Employment Tribunal would go about
                     calculating any compensation payable to you.

                     Most compensation is based on your financial losses. If you are unfairly dismissed the
                     compensatory award will be based on your loss of earnings resulting from the dismissal.

                     In addition, in an unfair dismissal case you are also entitled to receive a basic award based on
                     your salary, age and length of service. This is very similar to the amount of statutory redundancy
                     payable if you are made redundant.

                     If you are discriminated against you may be entitled to receive an amount for injury to feelings
                     calculated on a scale that reflects the seriousness of the discrimination.

                     In any compromise agreement situation we will assess what is being offered to you and advise
                     you on your potential entitlements if you decide to bring an Employment Tribunal claim rather
                     than accept the sum on offer. We are able to negotiate with your employer in relation to the
                     proposed settlement sum.

  T: 0207 743 6706                                                        Freephone: 0800 999 5005                    2
                                                          Your compromise agreement – the key issues

Taxation              It is possible that the first £30,000 of a settlement payment under a compromise agreement
                      can be paid tax free. This is a considerable bonus when agreeing settlement terms. However,
                      only certain payments can be made tax free.

                      The main payments made are:

                      • Redundancy payments, whether statutory, contractual or ex gratia, can be paid tax free.
                      • Payments in lieu of notice are generally taxable if there is a clause in your employment
                        contract that gives your employer the right to make a payment in lieu of notice. If there
                        is HMRC will presume that the payment is taxable and it is difficult to convince
                        them otherwise.
                      • If your employer pays you in lieu of notice when there is no contractual right to do
                        so, this amounts to a breach of contract and the payment can in most cases be made
                        tax free.
                      • Ex gratia payments (i.e. payments to which there is no legal entitlement but which
                        your employer might make to compensate you for terminating your employment)
                        are not taxable.
                      • Payments made to enforce post-termination restrictions or confidentiality restrictions
                        are taxable.

                      In most circumstances, even where it is agreed that payments or some parts of the payments
                      are not to be taxed your employer will insist on including a tax indemnity in the compromise
                      agreement. This means that if HMRC decide that the payments are taxable your employer
                      could claim the tax from you. As such, it is vital that the tax assessment is correct.

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                                                             Your compromise agreement – the key issues

Full and final       In signing a compromise agreement you are agreeing to sign away your right to bring
settlement clause    employment tribunal proceedings against your employer. Typically your employer will require
                     you to sign an all-encompassing waiver covering all potential claims.

                     There are exceptions to this, such as your right to make claims in relation to accrued pension
                     rights. These cannot be waived, and we will usually ask for this to be excluded. Similarly, we will
                     ask for “latent” personal injury claims to be excluded. It would not be fair to ask you to sign away
                     your right to claim for injuries that you are not aware you have.

Warranties and       Whilst compromise agreements give employers a high level of protection in relation to future
clawback clause      claims, they are not watertight and there are issues that cannot be compromised, such as rights
                     to claim a protective award for failure to consult in collective redundancy and transfer of
                     undertaking cases.

                     Employers will often want some form of comfort that you will not bring a claim even if you still
                     have the right to do so. Your employer may ask you to warrant that you are not aware of any
                     other claims and that even if you become aware of claims you will not seek to enforce them.

                     Employers may ask you to agree to a “clawback” clause allowing the employer to be repaid
                     the compensation sum in the event that you bring a claim. Such clauses are difficult to enforce
                     as they may fall foul of legal rules that prevent employers imposing a penalty on you for
                     breaching an agreement.

                     Whether or not this kind of clause is enforceable is unclear, but it tends to have a deterrent effect.

  T: 0207 743 6706                                                         Freephone: 0800 999 5005                    4
                                                              Your compromise agreement – the key issues

Confidentiality       Any post-termination restrictions in your employment contract that seek to prevent you from
and restrictive       working for a competitor, soliciting or dealing with your former clients or poaching employees
covenants             are only enforceable if your employment contract is not breached when you are dismissed.

                      If your contract is breached (for example, if your employer has no right to pay you in lieu of
                      notice but seeks to do so) then an additional payment will need to be made in order for the
                      covenants to be enforced. Any such payment is fully taxable and it is important to ensure
                      that a defined amount of the compensation payment is apportioned to the restrictions to
                      avoid HMRC arguing that the whole sum is taxable.

                      Similarly, any express confidentiality restriction may fall away if the contract is breached. In
                      these circumstances the employer may wish to impose a new restriction on you. Even if it
                      does not, there is an implied duty of confidentiality that will continue to apply.

Compromise            If your employment is being terminated you will need to find another job and a reference from
agreements and        your previous employer is an important part of securing alternative employment.
                      When negotiating a compromise agreement you have the ability to agree the content of the
                      reference your employer will give to potential future employers.

                      Most employers these days will give just the basic facts of employment in a reference: job title,
                      start date, termination date. The reason for this is that it is possible for a former employer to be
                      sued for negligence if it is careless in giving a reference. This has led to employers being cautious
                      about the references they give.

                      You may wish to agree a more substantial reference as part of the compromise agreement terms.
                      Many employers will resist this but it can be an important part of agreeing a settlement.

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                                                           Your compromise agreement – the key issues

Compromise          For your compromise agreement to be valid, you need to have taken independent legal advice
agreements and      before signing the agreement.
legal costs
                    In most cases, your employer will want the certainty that the agreement is legally enforceable in
                    order to prevent you from taking any action against it in an employment tribunal.

                    There are exceptions, but most employers will pay for you to take legal advice on a compromise
                    agreement as it is in their interests to get you to sign away your legal rights.

                    HMRC allows your employer to pay your legal costs on your behalf and for this not to be a
                    taxable benefit so long as the costs relate to advice on the termination of your employment
                    and the entering into of the compromise agreement. This is therefore also a tax efficient way of
                    structuring your settlement payment.

 T: 0207 743 6706                                                        Freephone: 0800 999 5005                  6
                                                             Your compromise agreement – the key issues

                      Adrian joined Prolegal in August 2011 to head up the firm’s employment law team.

                      The team works for individuals in relation to complex employment disputes and with companies
                      to manage their employment law risks.

                      Adrian qualified in 2000 having trained at Slaughter and May, where he qualified into the
                      pensions and employment department. In 2003 Adrian joined the employment team at Norton
                      Rose. The team was nominated for The Lawyer’s Employment Team of the Year in 2004 in
Adrian Hoggarth       relation to international employment work in which Adrian was involved.
Head of Employment
DD: 020 7743 6736     He became a Senior Associate with responsibility for significant employment matters in the
M: 07792 011 848      UK and the Middle East.

                      Throughout Adrian’s career he has worked closely with companies, directors and senior
                      employees and has particular expertise in relation to bonus disputes, restrictive covenants, team
                      moves and discrimination, as well as the engagement and dismissal of senior executives.

                      Adrian has worked with governments and companies internationally, particularly in the Middle
                      East, in relation to legislative reform and global employee mobility. He has a particular interest
                      in the financial services, healthcare, retail and leisure sectors, and has acted for a number of
                      sports organisations.

                      Memberships and Accreditations:
                      • Employment Lawyers Association
                      • Adrian recently sat on the ELA’s Legislative & Policy Committee in relation to the
                        Government’s Modern Workplaces Consultation.

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                                                                 Your compromise agreement – the key issues

                          Louise qualified in 2002 and has spent the past 10 years dealing with Employment Tribunal
                          claims on behalf of both Claimants and Respondents. She has a particular interest in claims
                          involving Discrimination and Whistleblowing. She also has experience in the Employment Appeal
                          Tribunal and Court of Appeal. Louise has appeared as an advocate in the Employment Tribunal
                          on many occasions and as such applies her knowledge of the practice of the Tribunals to ensure
                          that cases are effectively prepared for hearing.

Louise Taft               The Tribunal claims team is structured to use the experience of our senior solicitors but ensure
Senior Employment         that work is carried out cost effectively. Our systems ensure that we work efficiently to minimise
Solicitor                 cost to you whilst ensuring that you benefit from the extensive experience within the team.
DD: 020 7743 6775
                          Advocacy can either be carried out in house or, where more cost effective for you, by Counsel.
M: 07748 621838

                          Our in house experience allows us to give you the best possible advice as to when it is
                          appropriate to settle a case and at what level. If we believe settlement is the most appropriate
                          route for you, we will work to ensure this is achieved as soon as possible so as not to incur
                          unnecessary costs.

              We’ve been advising on compromise agreements over the last three decades.
                  We help people all over the country and we’re available 24/7/365.

  Call us for a free consultation on 0207 743 6706 or free phone 0800 999 5005, make an enquiry
    via email or visit our website

  T: 0207 743 6706                                                             Freephone: 0800 999 5005                   8

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