Why should I consider offering a Compromise Agreement?
At London Compromise Agreements, the employment solicitors advise employers that "it's the money not the principle" and offering a suitable compromise at the right time can save a lot of wasted time, energy and costs.
The primary reason for offering a compromise agreement is to prevent the employee from bringing a claim in an employment tribunal. It is only possible for an employee to contract out of their employment rights in certain circumstances, a compromise agreement being one of them.
Compromise agreements can be used to compromise claims that can be made under the following legislation:
- Sex Discrimination Act
- Race Relations Act
- Disability Discrimination Act
- Age Discrimination Act
- Trade Union and Labour Relations Consolidation Act
- Employment Rights Act (which includes the Wages Act)
It may also be possible to compromise claims for potential personal injury claims. However, it is advisable that you seek legal advice on whether it is appropriate to include this in the compromise agreement.
A compromise agreement also allows an employer to revisit post termination restrictive covenants, which prevent an ex-employee from becoming a competitor or poaching clients or employees. A departing employee may be a potential threat if there are no restrictive covenants or weak restrictive covenants in the employee's contract of employment. This may be the case when a junior employee has risen to a senior executive and still has the original employment contract of a junior employee. You should also consider incorporating confidentiality obligations and non-derogatory comments clauses. Given the complexity of the law surrounding these types of clauses, it is recommended that you seek advice from an experienced employment solicitor to ensure you protect yourself.
A compromise agreement sets out the post employment rights and obligations of both parties, making the future relationship certain. Whether you are making a redundancy or getting rid of a troublesome employee, you need to ensure you have followed the correct procedure and the compromise agreement properly sets out the agreed deal.
The decision whether or not to enter into a compromise agreement and on what terms can be a complex one. It can be helpful to bear the following in mind:
- Is the employee willing and able to enter into a compromise agreement
- Does the employee have a potential employment claim
- What would be the chances of success at the employment tribunal and what is the likely evidence
- What would be the cost of defending an employment claim
- What would be the likely award made by an employment tribunal
- Might fighting the case damage employee relations or will settling the case set a precedent for any future disputes?
- What are you obliged to pay the employee contractually and statutory
- What would be the likely financial package that the employee would find acceptable
- Are there any terms that you think would be beneficial to protect your business interests
- The Inland Revenue rules for making a tax free payment
- How and when you should make the offer? If you get the timing wrong you could create a claim for constructive dismissal
It is highly recommended that you discuss the matter with an employment solicitor at the earliest opportunity. Contact either Andre Pungerl or Ruth Neil of Stone Joseph solicitors (0207 8549098) for advice on what are the most relevant issues for you.