Redundancy and Compromise Agreements

Thousands of jobs have been lost in Britain’s financial sector as a result of the escalating credit crisis and it seems that even more redundancies are on the cards for City workers in the coming months.

If you are in the unfortunate situation of being dismissed because of redundancy, it may be that your employer has offered you a Compromise Agreement to sign.

A Compromise Agreement is a written agreement, which usually provides for your employer to pay you a severance payment on termination of your employment. In return, you agree that you will not pursue your employer in the Court or Tribunal for any claim arising from your employment, or its termination.

The obvious benefit to the employer is that the Compromise Agreement protects them from future litigation from disgruntled employees. These agreements are increasingly being used in redundancy situations where employers fail to comply with the law in making redundancies, for instance by failing to use fair selection criteria, properly consult with the employees about the risk of redundancy, or consider alternatives to the redundancy. The Agreement may also incorporate confidentiality obligations and place restrictions on your ability to work for a competitor, or with ex-customers or clients after you leave.

The benefit to the employee is that an additional, often tax free and often substantial, sum is often offered as part of the package as an incentive to give up their employment rights.

You do not have to sign a Compromise Agreement, but if you choose not to, then your employer is likely to only pay you your minimum statutory entitlement (for instance, notice pay, holiday pay and statutory redundancy pay).

The Compromise Agreement is only legally binding if it states that the employee has obtained independent advice from a qualified lawyer or certified trade union representative. Your adviser’s role is to ensure that you fully understand the terms and implications of the Agreement before you sign. Your adviser will have to sign the Agreement to certify that the relevant advice has been given and to confirm that they do not act for your employer.

As part of the severance package, your employer will often make a contribution towards the cost of you obtaining independent legal advice from a solicitor. If you have been presented with a Compromise Agreement and would like us to provide you with the necessary advice, or if you consider that you have been unfairly dismissed by reason of redundancy, our experienced Employment Unit would be happy to help you. Please contact William Addis.