3 Frequently Asked Questions on Compromise Agreement - How Much.....?

(Newswire.net -- February, 27  2013) Milton Keynes, UK -- Employees facing the prospect of an uncertain period of unemployment when presented with an employment compromise agreement will frequently have one core concern, how much?

However, from this 3 questions frequently emerge:

1. How much am I entitled to?
2. How much will it cost to obtain legal advice?
3. How much tax will I need to pay on the severance package?

We'll take a look at each of these in turn so that an employee faced with impending loss of employment may have a better understanding of where he or she stands financially.

1. Compromise Agreement - How Much Am I Entitled To?

How much an employee is financially entitled to depends on the circumstances and reasons for the proposed termination of the employment contract.

As with many employment law related issues, there is no one answer fits all and this editorial is intended to simply give some guidance on the potential values of severance pay.

Broadly speaking, the amount that an employee may be legally entitled to depends on 2 broad factors regarding the termination.

i. Was the dismissal for a "fair reason", or
ii. Was the dismissal for an "unfair reason"

Examples of fair reasons are redundancy, a lack of capability to do one's job, serious misconduct or an accumulation of instances of bad behaviour, organisational restructuring, a fundamental breach of an employer's terms and conditions of employment such as criminal activity and many more.

Unfair reason include such things as selecting a person for redundancy using unfair or subjective selection criteria; deciding to end a person's contract in breach of discrimination laws; ending a contract for conduct or capability without any formal disciplinary procedures excluding acts that may amount to gross misconduct; and many other situations.

The distinction is important from a negotiating perspective since an employee facing loss of employment for unfair reasons, will have a stronger negotiating position than an employee who is dismissed for a fair reason, for example redundancy.

Generally, employees being dismissed for a fair reason will only be entitled to pay and other contractual benefits up to the end of their notice period. How much notice will vary from employee to employee.

The law prescribes a minimum amount of notice of 1 week if the employee has been employed for at least 4 weeks and an additional week's notice for each year after the second year of employment, with a maximum of 12 weeks notice for employment of 12 years or more.

However, employees should review their own contractual terms as these may provide a more generous period of notice than the statutory minimum prescribed by law.

There are however, two exceptions to the general rule that employees dismissed for a fair reason are only entitled to notice and pay (plus any other contractual entitlements) during the notice period.

1. Gross Misconduct

In circumstances of dismissal for gross misconduct an employee is not entitled to any notice as he is deemed to be in serious breach of contract.

2. Redundancy

The second exception relates to redundancy, which whilst a fair reason for dismissal, the law provides additional protection by prescribing a minimum amount of redundancy pay in addition to notice and pay during notice.

To calculate statutory redundancy pay, rather than set out here the mathematical formula for working out basic redundancy pay, since it will depend on a number of employee specific factors, simply head over to the Government's website, where you will find a simple 4-step process for calculating statutory minimum redundancy pay.

However, an employee should check with the employee to see if it operates its own contractual redundancy scheme. Company redundancy schemes tend to be more generous than the statutory redundancy and in such circumstances, the employee would be entitled to the enhanced benefit of a company run redundancy scheme.

Compromise Agreement Pay & Unfair Reasons for Dismissal

As a general rule, if an employee suspects that the reason for dismissal are not fair and there is strong documentary evidence to support a potential claim for unfair dismissal, in these circumstances an employee is more likely to have a stronger negotiating hand.

Potential Value in Instances of Unfair Reasons for Dismissal?

To assess the potential value, a solicitor will treat the case similar to a claim for damages for unfair dismissal, which is made up of a basic award and a compensatory award.

The basic award is simply the equivalent of basic statutory redundancy pay.

The compensatory award is an approximation of actual loss and future loss of income of the employee caused by the unfair termination of employment. And as a general rule compensation equivalent to 4-6 months pay is considered a decent settlement for loss of employment.

In addition to this an employee will also be entitled to notice pay and all other contractual entitlements to the end of the notice period.

In part 2, we take a look at 2 more frequently asked questions:

1. How much will it cost to get legal help with a compromise agreement; and

2. How much tax is due on a compromise agreement settlement?

In the meantime, you can find more information and answers to frequently asked question on employment compromise agreements at http://www.cardonaandco.co.uk/compromiseagreement.