East London Solicitors

Compromise Agreements (business)

How can an employer avoid potential legal claims after dismissing an employee?

If an employer dismisses an employee there are many pitfalls the employer is vulnerable to falling in. The costs of bringing yourself out of a pitfall can be substantial.

How can a Compromise Agreement help?

This Agreement can guide you away from the pitfall and help navigate your way around potential legal battles. The ultimate outcome is saving potential legal costs and a large amount of time spent on litigation matters.

Will the agreement remain confidential?

Yes. Compromise Agreements should comply with Employment Legislation which states that a confidentiality clause should appear in the agreement. This clause will prohibit the departing employee from divulging details of the Agreement.

What are Compromise Agreements?

They are legally binding contracts which act to prevent employees from bringing current or future legal employment claims against their employer.

How does the Agreement work?

The employer will pay the employee a cash incentive which could range from £500 to a few thousand pounds in exchange for a promise not to bring a claim against the employer.

The Agreement should be widely drafted to specify all types of claim the employer is shielded from such as redundancy, wrongful dismissal or unfair dismissal claims.

When is the best time to draft a Compromise Agreement?

You can enter into a Compromise Agreement at any time with your employee. They are proving particularly popular now that redundancies are rising steadily and will have the effect of capping the amounts needed to pay out redundancy claims.

Do I need a solicitor to help draft the agreement?

It is necessary under the Employment Act that both parties are given impartial legal advice before entering into a Compromise Agreement. This will also enable the employer to ensure the agreement is binding and enforceable in a court of law. It is also advisable since the drafting will involve referring to various sources of employment law and the existing employment agreement. The agreement will be binding once each party signs a certificate confirming impartial legal advice has been sought.

Will the employer be able to pursue any claims against the employee?

This will depend on what the agreement says but normally it is necessary for the employee to agree that they will not pursue any legal claims against the employee.

Can I avoid tax and national insurance costs?

Yes if the agreement is properly drafted and a payment of no more than £30,000 is made it will be paid free of tax and national insurance.

Im still not convinced that it will be worthwhile in the long-run…

The agreement provides you with certaintly that expensive litigation will be avoided if you feel it will make economic sense to terminate one of more employees. The Agreement will give you the flexibility to operate your business in the most efficient way possible.

Return to the main business law menu ?