Employment Compromise

							Employment
Compromise Agreements …what does it all mean?
Essentially, under a compromise agreement an employee receives a sum of money and in return agrees not to sue the employer. Compromise agreements are commonplace for employees leaving employment for a variety of reasons, from redundancy to dismissal. Some employers will use a compromise agreement as a matter of course (when the employee is leaving or has left employment) and other employers may only use them as a result of a claim being alleged or instigated by the departing employee. The reason compromise agreements are popular with employers is that the employer knows that once the agreement has been signed, generally speaking the employee cannot bring or continue a claim against the employer.

What can you expect to see in a compromise agreement?
Compromise agreements regularly include certain standard clauses. For example: Settlement of all claims A compromise agreement will contain one or more clauses confirming that all claims the employee could have against the employer will be settled, thereby preventing the employee from pursuing the employer in the court or tribunal. However, there are two exceptions; accrued pension right claims and certain personal injury claims cannot be compromised. Generally speaking, the reason these claims cannot be compromised is because no claim exists when the compromise agreement is entered into. If the employee discovers that there is a claim in the future for pension or personal injury claims, then they should be able to take legal action against the employer. Tax indemnity Sometimes settlement monies, or a portion of the settlement monies, are paid without deductions of tax or national insurance. There are specific rules governing whether a settlement payment can be made without deductions and there are limits on how much can be paid gross. Employers are often willing to make settlement payments gross but with the protection of a tax indemnity clause. This means that, in the event that HMRC decides that the payment should have been made with deductions, the employer will recover the deductions and any penalties directly from the employee. These clauses are standard and the employer is extremely unlikely to agree to the removal of such a clause, but amendments can be made that provide for greater protection for the employee in the event that a demand is made by HMRC. Warranties Compromise agreements regularly include a variety of employee warranties. For example, in return for the settlement monies the employee warrants that they will keep the contents of the compromise agreement confidential, has not committed an act of gross misconduct, will not make derogatory

comments about the employer, will not act in breach of restrictive covenants or confidentiality clauses etc. If an employee breaches these warranties then the company may require the settlement monies to be repaid. It is important that the employee reads these warranties carefully as failing to adhere to them can be a breach of the compromise agreement thereby allowing the employer to bring a legal action against the employee for breach of contract. The warranties also need to be read carefully to make sure the employee is not put at a disadvantage and to ensure that where appropriate the employer enters into similar warranties. References A compromise agreement will usually state that the employer will provide a reference on request, and in an agreed form. References are usually very brief but can be amended or improved on during any negotiations. When advising employees, we look to amend the reference clause to provide greater certainty for the employee. Without prejudice Without prejudice essentially means “off the record”. Without prejudice documents cannot be shown to a court or tribunal at a later date. The purpose of this is to encourage parties to settle disputes without concern that they are going to be at a disadvantage in any ongoing litigation. However, marking a document "without prejudice" does not automatically mean that you can say what you like without fear of it being put before a court or tribunal later on and so care should be taken - detailed legal advice is often required on this. Whilst a compromise agreement is being negotiated, it will normally be on a “without prejudice” basis. Once all the terms of the compromise agreement have been agreed and it is signed by all parties, the compromise agreement should include wording to the effect that it will lose its “without prejudice” label; it will become an “open” document. This means that once the compromise agreement is signed either party can show the agreement to a court or tribunal. For example, if the employer fails to pay the settlement monies the employee can use the signed compromise agreement to sue on. Legal advice Before a compromise agreement can be validly entered into, the employee must receive independent legal advice to ensure that they understand the terms and effect of the compromise agreement. In addition, we look at what legal claims the employee may have against his employer, and whether the settlement monies on offer satisfactorily compensate the employee. We will also look at amending the compromise agreement to provide the greatest protection and advantage to the employee. If you would like to talk to us about your compromise agreement, please contact Guy Hollebon, Head of Employment, on 0117 923 7249 or ghollebon@bevans.co.uk

This leaflet is for information only and does not replace the need for specific legal in each individual case. Grove House 46 Essex Street Grove Road The Strand Bristol London BS6 6UL WC2R 3JF 0117 923 7249 020 7353 9995 Phone 0117 923 7253 020 7353 9994 Fax 99880 Bristol Redlands 413 Chancery Lane DX info@bevans.co.uk thestrand@bevans.co.uk Email

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