Exit packages or compromise agreements are offered when an employee leaves employment - either through resigning, being made redundant or dismissed. Here's some useful advice from Holly Dobson, Partner in the Employment team at Wake Smith.
What is a Compromise Agreement?
A Compromise Agreement is a settlement agreement or contract which prevents or limits future disputes. Agreements to compromise or settle disputes are used very frequently before Court proceedings or Employment Tribunals. Employers and employees often end the relationship with a Compromise Agreement bringing certainty to both parties.
When is it used?
It is most often used prior to the employee leaving employment. Not every employee who resigns or is made redundant or dismissed will seek or be given a Compromise Agreement but there are advantages to both parties in many cases.
Why is it used?
For an employer it brings business certainty and management of risk at the end of an employment relationship because a properly negotiated and drafted Compromise Agreement will ensure finality in the ending of the relationship and will avoid a future employment dispute in the Tribunal or Court.
For the employee who may have a claim it avoids the cost and uncertainty of progressing a dispute.
For both parties there may well be considerable tax advantages and savings, which are beyond the scope of this article.
How does it work? What are the key features?
Unlike other types of settlement agreements, compromises and contracts where there are employment claims the law provides that a Compromise Agreement will only be effective to sign away an employee's right to bring statutory claims in the Employment Tribunal if the employee has had independent legal advice on the Compromise Agreement. This is usually evidenced by the independent lawyer countersigning the Compromise Agreement itself or providing a suitable effect to the employer. Usually the employer will pay the costs or a contribution to costs of the employee's independent lawyer.
The question of what constitutes an independent lawyer and the role of that independent lawyer has been the subject of some legal debate recently following the coming into effect of the Equality Act and issues surrounding multiple claims. That is outside the scope of this note, but in practice for most employers and employees the issues will be very straight forward. The question of the role of the independent lawyer will be very straightforward.
Why is it important to know about Compromise Agreements?
An employer with an potentially tricky situation which may result in a departing employee needs to be aware of the possibility of compromising future claims and needs advice on what the benefits of a Compromise Agreement are, for example tax issues and when and how to promote or adopt their use.
Largely due to the current economic climate employees are leaving jobs at a significant rate, whether voluntarily or otherwise. It is potentially to the advantage of some employees to raise the issue of a Compromise Agreement - others will be presented with a document and asked to see an independent lawyer and have it signed. Employers and employees alike should know that this is a method of dispute resolution.
Where can I find out more information?
There is a bewildering array of information relating to Compromise Agreements available on the internet, much of which is not always appropriate.
For further advice please contact Holly Dobson at [email protected] or call 0114 266 6660.
