Unfortunately, situations arise where an employer may seek to terminate an employee’s employment. This can be for a number of reasons, but most commonly this situation can arise as a consequence of financial performance of a business or restructuring, meaning savings or cutbacks have to be made, which can lead to employees facing redundancy.
When an employer wants to terminate an employee’s employment, this will usually be done in the form of a Compromise Agreement, which sets out any compensation an employee is due to be paid for their employment ending and settles any financial claims which an employee may have against an employer.
When employees are presented with a Compromise Agreement, it is a legal obligation that they seek legal advice on the same and a legal adviser will usually be required to sign a certificate attached to the Agreement to confirm that they have given the employee legal advice.
But what is involved in the process of a Compromise Agreement and what legal obligations need to be adhered to?
Required Documents
When preparing a draft Compromise Agreement (an “Agreement”) for an employer, or being asked to advise an employee on a draft Agreement they have been provided with, lawyers will usually request a number of documents, as follows:
- A Contract of Employment/Terms of Employment (and proof of any subsequent amendments to the same i.e. if the employee has had a change in job title or salary increase);
- Any Company Handbook that may exist;
- A copy of the employee’s payslip for the last financial year;
- A copy of the employee’s most recent payslip;
- Any correspondence between the employer and the employee regarding the termination of the employee’s employment;
- Confirmation of how many days of annual leave the employee is entitled to, if different from the number of days stated in their contract, and how many days of leave they have taken up to the date their employment is due to terminate.
A brief outline of the Process
Lawyers will use the documents listed above to check what the employee is due to be paid under the Law. Factors they check include:
- The length of time the employee has been employed and what the employee’s legal minimum entitlement to compensation is for their employment ending;
- The employee’s notice period and if they are being offered payment in lieu of notice (PILON);
- Whether the employee has accrued but not taken any annual leave, which they would be entitled to payment for;
- If the employee is owed any further sums under their contract, for example for benefits they receive from their employment, or conversely if the employee may owe the employer any sums, for example if the employer has paid for employee training courses which may need to be reimbursed.
If advising an employer, the lawyer will provide the draft Agreement to the employer with advice on the above points and including any appropriate calculations. The employer will then give the Agreement to the employee to seek legal advice on.
If advising an employee, the lawyer will check the draft Agreement for the above points against the documents requested and/or provided to the lawyer with the draft Agreement and will then meet with the employee to go over the Agreement, the legal effect it has and to ask the employee whether they have any further points not contained in the Agreement. They will also suggest potential points of note they have made from reviewing the Agreement and ask the employee if they would like to raise any noted points with the employer.
Once an agreement has been reached by both sides, the employee will usually sign and return this to the employer via their lawyer (who would sign any Legal Adviser’s Certificate) and the employer will then also sign it and provide a fully signed copy of the Agreement back to the employee via their lawyer. Overall, the process can take several hours to either draft the Agreement or to review a drafted Agreement and meet with an employee to discuss the same. Employers will offer employees a contribution, usually up to £1,000, towards their legal fees.
Due Date
Often draft Compromise Agreements will contain a Due Date (alternatively defined as a “Return Date”) for when an employee needs to have a draft Agreement reviewed and returned to an employer by.
In these situations, it is important that an employer has any documentation that the employee may require easily accessible so that they can provide this to the employer/employee if needed. It is also important that the employee seeks advice on a draft Agreement as soon as possible, as they may not be able to get a lawyer to review the documents in time if a Due Date takes place in only 1-2 working days’ time.
Fair redundancy process
It should be noted that sometimes situations can arise where an employer either does not or is unable to go through a full redundancy process, including a consultation with employees of their employment being at risk of redundancy. In such situations, employers should be aware that a failure to undertake a fair redundancy process could result in an employee’s dismissal being deemed to be an unfair dismissal, which carries a higher level of statutory entitlement to compensation than redundancy.
If asked to adjudicate on this point, factors that the Tribunal will likely consider when making this assessment could include:
- The duty to consult with the employee;
- The duty to warn of redundancy;
- The duty to establish fair criteria for selection of employees for redundancy;
- The duty to explore alternatives to redundancy;
- The size and resources of the employer; and
- Whether the employer acted reasonably in its actions; i.e. whether the decisions made were within the band of reasonable decisions which could be made by a reasonable employer.
Sometimes employers will pre-empt this risk by offering an employee an amount of compensation which is more in-line with what their legal entitlement would be for a matter of unfair dismissal. If not, they may face argument or scrutiny from any lawyer acting for the employee as to whether or not a redundancy process was fair (which is why any correspondence between the employee and the employer regarding the termination of the employment may be requested, to show the extent to which a redundancy process was followed).
Employers should therefore give careful consideration to the above when considering if employee redundancies are needed and how this is approached, and employees should take note of how they are told their employment is ending and any consultation and/or process that was followed leading up to this, if they are being told that they are being made redundant.
If you are an employer who is considering Compromise Agreements or are an employee who has been provided with an Agreement by your employer, please contact our Employment Team on 01534 760710 or email employment@lgl.je where we would be happy to assist you.
