Redundancy and Compromise Agreements
I have recently been selected for redundancy. I have been offered a redundancy payment but my employer has told me that I must sign a Compromise Agreement in order to get the full amount. What is a Compromise Agreement and will I benefit from signing it?
The ‘Credit Crunch’ and the downturn in the economy has forced many businesses within our region to reduce or restructure their workforces and, in some extreme cases, businesses have had to cease trading altogether.
A Compromise Agreement is a legally binding agreement between you and your employer. Such agreements are used, in a variety of circumstances, to set out the terms and conditions reached when a contract of employment is terminated. As well as redundancy, these agreements can also be used to settle employment disputes and tribunal claims, and even when individuals leave their job by mutual agreement.
The agreement you have been offered should provide a full breakdown of the payments that you are going to receive from your employer. It should indicate whether the payment offered takes into account money in lieu of your notice period, and any holidays that may be owed to you. It should also give you an indication as to whether any tax or national insurance is payable on the sum being offered to you.
In return for the payment, your employer will be attempting to exclude you from being able to bring claims against them as a result of the termination of your employment, in a court or in the Employment Tribunal. It is crucially important for you to know that by enterring into the agreement you will be signing away your right to bring a claim against your employer.
It is normal for the agreement to also include a number of other specific clauses. Your employer may look to include such things as a confidentiality clause, a clause that you will not make any derogatory statements about them and possibly certain other restrictive covenants. If these clauses are included then you will not be able to discuss the terms of your package or your employer’s business affairs with any other party, you will not be allowed to make any derogatory comments about your employer and there may be restrictions on your future employment.
As the Compromise Agreement has the effect of turning your redundancy package into a ‘full and final’ settlement of any claims that you may have against your employer, it is crucial that you take legal advice on the contents of the it and whether it offers you sufficient compensation for losing your job. The agreement should confirm that your employer will pay your legal advisor’s fees for providing the advice.
The Employment Rights Act 1996 states that you must receive advice from someone who is professionally qualified to advise you on the contents of the agreement and that whoever advises you must sign the agreement confirming that you have received the necessary advice.
We will advise you upon the terms of the agreement and consider whether the payment you are being offered is higher or lower than what you are entitled to under the law. It is often the case that an employer will offer a higher redundancy payment in return for an employee entering into an agreement, as the protection offered by the agreement to the employer is extremely valuable to them.
Bradley Armstrong - 2009
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