Compromise Agreements
With the current state of the economy, many employers are finding themselves in a position where they are having to make redundancies. Redundancy is only a potentially fair reason for dismissal. To ensure fairness, the employer must follow a full redundancy procedure, fully consulting and adopting a fair, objective selection process. This procedure can be time consuming; time which the employer may not have.
What may be a more suitable alternative for particular employees is to offer them an exit package, in the form of a Compromise Agreement. This is an agreement that records the terms and payments to be made to the employee, in return for a complete waiver of claims. It offers a benefit to the employee, because they can have a lump sum of money, (some of which can be Tax free), and offers a benefit to the employer because they can let the employee go fairly swiftly without worry of an Employment Tribunal claim.
A Compromise Agreement can be fairly expensive to an employer, as they would have to carefully consider the right figure to offer the employee. It would have to be enough to make the employee view it as a better option than going to a Tribunal.
The employer must also be careful about how they put forward the idea to the employee. If proposed in the wrong way the employee may easily take the view that their dismissal had already been decided upon.
Careful drafting is paramount. To start with, there are certain statutary requirements the agreement must comply with in order to be valid. It as also important to draft the warranties carefully, as a recent case, Collidge v Freeport [2008], demonstrated. Here, the warranty demanded that the employee had not done anything which would have entitled the employer to dismiss them anyway. He had. Because it was carfeully drafted so that the payment provisions were linked to the warranty, it became a pre-condition to payment, so the employer was not obliged to pay.
Compromise Agreements must be drafted carefully, adhere to the statutory requirements and offer the right compensation to tempt the employee. If done properly, this can be a fairly quick method of exit which will please both employer and employee.