UK Compromise Agreements - What Do They Contain? by Tim Bishop

What does a compromise agreement include?

UK Compromise agreements are composed from a mixture of generic clauses (contained in most agreements) and clauses specific to your employment relationship. Here are some sample provisions that are commonly contained in a compromise agreement:

- An agreement on what type of reference the employer is willing to provide. There is no legal obligation for an employer to provide a reference for an employee; therefore it is important that details are provided in the agreement for any references that may be requested. Often the contract will provide only for the very basic type of reference, i.e. employment details and job description outline and therefore is a negotiation point.

- There may be a restriction in the agreement preventing the employee from seeking or starting employment elsewhere, ie within a particular sector. This could be potentially highly restrictive on the employee and thus it is really important to seek professional legal advice if such a clause is included.

- A provision stating the amount of compensation that the employee will be getting under the agreement. Note; a payment of up to £30'000 can be received by the employee tax free (however, if this amount is made up from wages and annual leave monies owed, then normal tax and national insurance contributions will apply).

- A PILON (Payment in Lieu of Notice) clause may be included as part of the contract (please see below for more information on the definition of a PILON). If monies are received under the PILON umbrella then they will be classed as being received whilst in employment and therefore will be subject to tax and national insurance.

- It is normally requested that a 'tax indemnity' clause is provided. The employer therefore does not have any liability with regard to paying tax or national insurance money owed on payments made under the agreement.

- A joint provision not to make derogatory comments about the other side. This works both ways, providing protection for the employee and employer against potential slanderous remarks against them.

- A confidentiality clause to ensure that the employee does not release any specialist information gained from their employment contract to a 3rd party, ie not giving away any 'trade secrets'. Another aspect of this clause is a prohibition on the former employee from sharing any information about the company's service contracts or fellow colleague's employment contracts with outsiders.

- A legal claims clause. These will normally be long and comprehensive. The contract will detail a list of all potential legal claims that the employee is restricted from bringing against the employer. Employment tribunals have made it clear that an employer cannot merely state that an employee is unable to bring legal action against them, a clause as generic as this is unenforceable.

What is a PILON (Payment in Lieu of Notice)?

A 'payment in lieu of notice' is a sum of money paid by an employer to compensate an employee for not working the notice period required under their contract. These types of payments can be used in cases where the employer does not wish the employee to physically be present at work for his/her notice period.

Legally an employee must be able to earn what their contractual earnings would have been if they had worked the notice period in full, a lesser sum cannot be offered as a PILON.

What is Garden Leave?

As discussed earlier, the employer may request that the employee stays out of the workplace even though they are still being paid. Garden leave is an arrangement where the employer still pays the employee's salary whilst keeping them off work. This can apply at any time, whereas a PILON is specific to an employee's notice period.

Employers may choose to keep an employee off work for many different reasons, some examples are; logistical reasons such as office space, if the employee is particularly troublesome, or lastly the employee imposes a risk of poaching customers or staff members.

An employer is normally only able to enforce garden leave if there was a provision providing for this in the original contract of employment. Nonetheless, garden leave is often negotiated as part of a UK compromise agreement.

Don't forget to ensure that you need independent legal advice on your UK compromise agreement - otherwise it simply will not be binding. When choosing a solicitor to advise you, ensure you choose employment law solicitors specialising in compromise agreements.

About The Author

Bonallack & Bishop are a firm of specialist employment law solicitors (http://www.compromiseagreementsolicitorsuk.co.uk ) with a team experienced in advising on compromise agreements. Senior partner Tim Bishop is responsible for all major strategic decisions and has expanded the firm by 1000% in 12 years. He has plans for its continued growth, seeing himself as a businessman who owns a law firm.

The author invites you to visit:
http://www.bishopslaw.co.uk