When an employee involuntarily “leaves” his employer, the well advised employer will want the departing employee to sign what is called a Compromise Agreement. The employer will often volunteer to pay for the employee to see a solicitor so that the solicitor can advise him or her and “sign off” the document outlining the terms. The employer does not agree to do this out of the goodness of his heart. He knows that once the solicitor has signed the document, then the employee cannot change his mind later and bring a claim against the employer. If the employee feels that he should not have signed away his rights, then he can only bring a claim against the solicitor for negligence. The disgruntled employee has no come back against the employer. Thus the payment of a contribution towards the solicitor’s fees gives the employer peace of mind and so far as he is concerned is a small price well worth paying.
There are of course technical aspects and these largely revolve around exactly what claims have been compromised and the taxation position. The document will often provide for a payment which is within the £30,000 tax exemption for payments made on the termination of employment. If the parties have got the tax position wrong and the employer should have deducted tax from what is paid over to the employee, then the document will usually contain a clause whereby the employee agrees to indemnify the employer against the employer having to pay tax and national insurance on the monies paid over. The Inland Revenue would usually look to the employer for the tax and national insurance which the employer should have deducted. The usual terms are that if the employer did get it wrong and he ends up having to pay to the Revenue, then the employee has to reimburse not only the tax and national insurance, but also any interest and any penalties which the Revenue might levy on the employer. Another frequently occurring provision which might involve taxation complications is where the departing employee agrees to be bound by a new set of restrictive covenants.
The moral must be for the employee not to treat the Compromise Agreement as a mere formality but to seek the advice of an independent solicitor. Before seeing that independent solicitor the employee should let the solicitor know what claims (if any) he thinks he might have about the way he has been treated. As well as sending the solicitor a copy of the proposed terms in advance of seeing him, the employee should also let the solicitor have a copy of the relevant contract of employment. The moral for the employer is to make sure that he cannot be exposed to a claim a few months down the road after the employee has left.
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