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Employees risk losing out under compromise agreements

(May 16, 2012)
DMN Newswire--2012-5-16-- Compromise agreements where an employee agrees not to make a claim against their employer in return for a financial settlement could deprive employees of the best exit deal, warns Only Law Site

With businesses making redundancies in response to the challenging economic climate the use of compromise agreements in relation to redundancies, unfair dismissal or unlawful discrimination is ensuring businesses can avoid future claims by former employees.

However, Only Law Site is warning that agreements offered to out-going employees might not offer them the best package. Hence it is essential that employees seek advice about what they are agreeing to. In fact it is a legal requirement that before signing such an agreement, employees have received independent advice. Employers will typically pay or contribute towards the legal expenses incurred in receiving the legal advice on the agreement.

Paul Singh says:

?Compromise agreements are an effective tool in ensuring both employer and employee can resolve an issue fairly. However, the agreements will usually emanate from the employer and employees should not take it as read that it is the best deal on the table.

?Seeking the advice of a solicitor once the agreement is offered is essential. Without one, employees could be walking away with a settlement which is far from a compromise. A solicitor can negotiate on an employees behalf.

?Unlike the majority of other advisers, solicitors are best placed to advise employees on such matters as the taxation implications arising from a settlement payment and how that payment could be structured in the most tax efficient way. It is what they are trained to do.

Only Law Site says that what seem like ?attractive packages are offered to employees under the agreements, but that a solicitor will have an understanding of what is fair for the employee.

Paul Singh: ?What might appear to be a golden handshake of sorts might not be best for the employee, especially in the current job market. Four months pay might sound like a good offer, but if your notice period is three months, you are really only getting an extra months pay to leave quietly. With many people finding it difficult to find work at the moment, that might not last long.

Only Law Site points out that using a solicitor can ensure other factors, such as length of service, can be taken into account in the settlement.

Rights and clauses

Only Law Site, a UK website providing free legal advice,  says that compromise agreements typically include clauses that go far beyond the simple compromise of potential tribunal claims in respect of which a solicitors advice can be crucial.

Examples include, covenants in respect of not competing with the employer in the future; the return or retention of the employers equipment; the parties not making derogatory remarks against each other; the employee providing assistance to the employer, without remuneration, in the future.

While an employee can reasonably be expected to waive their rights in respect of claims they are currently aware of, such as redundancy payment or notice pay, they should not waive rights in respect of matters that could present themselves in respect of future pensions or personal injury claims.

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