November 01, 2017
In the current economic climate many businesses, both large and small, look to restructuring as a way to cut costs and achieve greater efficiencies.
The regrettable, but inevitable, downside of this is often the loss of jobs.
In these circumstances many employers look to agree severance terms with employees through what is known as a Compromise Agreement.
These legally binding agreements are designed to achieve a ‘clean break’ between the employer and employee when a contract of employment is to be terminated or a dispute is to be resolved.
They are often used in redundancy situations and when the employer is offering an enhanced redundancy payment. As part of the bargain, the employee agrees that they will not bring any claim to the Employment Tribunal.
There are a number of points which must be covered for the agreement to be binding:
- It must be in writing
- It must relate to a particular issue e.g. redundancy
- It must state that the conditions regulating compromise agreements have been satisfied
- You must have received independent legal advice on the agreement and the agreement must identify the legal advisor
- The advisor must hold their own professional indemnity insurance
Usually, your employer will agree to meet the legal fees in full or make a contribution towards them. At Pudsey Legal, we will not charge you more than this amount,* ensuring you do not therefore have to pay anything out of your own pocket.
As a general rule the first £30,000 of any redundancy payment is paid tax free. However, if any part of the settlement relates to eg. holiday or notice period pay, then those will generally be subject to tax/NI at the normal rate.
Sometimes it is necessary to seek to amend the terms of the agreement e.g. to add or remove a term or to vary the amount of the settlement offered. Your legal advisor will discuss this with you.
Free advice on a potential dismissal
It may be the case that you have not yet been offered a Compromise Agreement but you fear that you may be dismissed, or you may have already been dismissed but without compensation. In either of these circumstances, we can offer you an initial consultation to discuss your rights and advise you on your most appropriate course of action. This may include proposing a Compromise Agreement to your Employer.
Remember, here at Pudsey Legal, we are on hand to give you expert advice and guidance if you are faced with this unfortunate situation.
*Subject to minimum contribution of £200 pus v.a.t.