Severance Packages

Severance Packages

The increase in formal procedures required to terminate an employment contract, without risking an employment tribunal claim, has meant that employers are more prepared to negotiate an exit package by way of compromise agreement.

A compromise agreement is a formal legal document, the terms of which provide for payment of an agreed sum of money in return for the employee giving up the right to bring one or a number of employment claims which would otherwise arise.

Some of the settlement monies may be tax free (up to £30,000) and it is also possible to negotiate an agreed reference as part of the deal. This is very useful if there has been any animosity surrounding the departure, since a court of law does not usually have the power to order an employer to provide a reference.

As an employee, care must be taken when entering into a compromise agreement as there are often terms which may restrict an employee in a detrimental way regarding future employment or may prejudice any other claims you may have.  We would therefore advise any employees who may be entering into such an agreement, to seek independent legal advice as to the terms and effect of a compromise agreement.  Such advice would also include important guidance with regard to the risk of incurring liability for excess tax on a payment which the parties intended to be tax free.

Ralli’s expert employment team of solicitors are on hand to advise you on all of the legal issues surrounding compromise agreements or on any other related legal concerns you may have.

Please contact Ralli’s head of employment, Mark Higgins or solicitor Lisa O’Brien.