FAQs : Employees

1. When should I take advice?

As soon as possible, is the short answer. We usually advise employees about their exit from a company long before they ever reach the stage of negotiating a Compromise Agreement. You will know when there is an issue. If in doubt make use of our fixed fee legal consultation service to get some advice.

2. Why is some of the settlement payable tax-free and why is some taxed?

The general rule of thumb is that payments due in accordance with your contract of employment, such as payments for untaken but accrued holiday, are subject to tax even though they are contained in the compromise agreement. Ex-gratia payments are generally not subject to tax. The rules about what is taxable and what is not are complex and you should take advice on them so that your compromise agreement is as tax efficient as possible.

3. Do I need to see a Solicitor?

Yes For a Compromise Agreement to be legally valid you must visit a specialist solicitor who is properly insured and can give the employee proper legal advice on the legal effect of a compromise agreement. You should also ensure that the Solicitor advising you is a specialist employment Solicitor who is able to advise you properly on the legal aspects of your situation. The solicitor should also be able to give you independent advice which is not always the case when the solicitor is recommended by your employer.

4. Why are there clauses in Compromise Agreements, which state the employee must take the risk of paying tax?

All Compromise Agreements provide that where an employee gets an ex-gratia tax-free payment it is the employee who takes the risk of the taxman claiming back tax. This is called the 'indemnity clause' and because of this clause we will always want to see the terms of your employment contract and any related documentation so that we can advise you properly.

5. Do I have to have a meeting or can I be advised over the telephone?

Provided we have seen all of the relevant documentation there is no reason why we cannot advise you over the telephone about the terms of the Compromise Agreement. However you will always find it helpful if we take you through the compromise agreement a paragraph at a time and this is best done in a short meeting. Also, often new points are identified in a meeting that might otherwise have been missed. A meeting is usually a good idea. Be very wary of anyone advising you to sign a Compromise Agreement without first having taking you though it clause by clause.

6. What documentation does my Solicitor need to see?

	The draft Compromise Agreement.
	Your Contract of Employment and any letter of appointment
	All documentation regarding your fringe benefits. These may be set out in a company handbook and/or there may be scheme documentation relating to share options, bonuses, commissions, death in service benefit, permanent health insurance, health insurance and pensions.
	All correspondence whether by e-mail or letter in which the reasons why you are being presented with a Compromise Agreement.
	A pay slip
	Proof of identity such as a passport or photo drivers license
	Proof of your residential address such as a utility bill, a bank or credit card statement (any of these must be less than 3 months old).

Can the sum offered by the employer be negotiated upwards?

It depends. In cases of mass redundancies an employer mayhave a budget which they are required to follow and will be reluctant to negotiate the terms of the comptromise agreement. In other more complex cases where there are is a real possibility of bringing an Unfair Dismissal and/or a Discrimination claim against an employer, there is scope for real negotiation. In these cases, it is often possible for your solicitor to obtain better terms than those initially put to you in the compromise agreement.

What is the role of the Solicitor?

The main role of Solicitor is to explain the meaning of the words in the Compromise Agreement, its effect and what rights you may be giving up by signing it, and to ensure that the compensation you are being offered is satisfactory. It is important that you appreciate once you have signed the compromise agreement agreement that you will no longer able to sue your employer for any breaches of your contract or of your contractual or statutory rights.

Do I have to sign the agreement?

No you do not. There are occasions when we will advise you not to sign the compromise agreement either because the sum offered is in our view inadequate or because you wish to sue your employer. We will explain all of your options to you and it is then up to you to decide how to proceed. Remember that if you decide not to sign the Compromise Agreement you will not receive the ex-gratia tax free payment.

Will the contribution to legal costs be sufficient to cover the legal costs?

The vast majority of employers offer their employees a contribution to legal fees which is sufficient to ensure that in most cases we can advise at no cost to the employee. Not all Compromise Agreements are straightforward and in some cases extensive negotiations may be needed to achieve a settlement and in such case the employee will pay any additional costs unless as part of the negotiations with the employer the contribution to legal fees can be increased. If you have an Employment Law question or concern which is not related to a compromise agreement please contact us for a fixed fee legal consultation and we will be pleased to provide you with our expert guidance

Compromise Agreement Advice by Silverman Sherliker, Solicitors.

Regulated by the Solicitors Regulation Authority