Hiscox insurers have announced that it has seen a threefold rise in insurance claims over the last quarter just from SME employers being sued by former employees for ‘unfair dismissal’, with many of these arising as a result of ‘redundancy’. So what are businesses doing to protect themselves and why?
What? With more redundancies being made every day, it appears businesses are taking the extra step to protect themselves by issuing compromise agreements to those employees being dismissed on the grounds of redundancy.
Why? Whilst some maintain that, given the climate, the likelihood of a successful challenge to redundancy is low, others argue that employees are more likely to pursue claims given the reduced chance of finding new work, resulting in greater losses. It is worth noting that Hiscox have stated that many claims have arisen from a failure to follow the correct procedure and selection process, or making people redundant where the reason does not genuinely relate to redundancy.
A compromise agreement prevents an employee from bringing most claims, against their employer, to a Tribunal or Court in return for a financial incentive!
For a compromise agreement to be valid certain conditions must be met. These are:
- The agreement must be in writing.
- The agreement must relate to a particular complaint or proceedings.
- The employee must have received legal advice from a relevant independent adviser on the terms and effect of the proposed agreement and its effect on the employee's ability to pursue any rights before an employment tribunal.
- The adviser must have a current contract of insurance, or professional indemnity insurance, covering the risk of a claim by the employee in respect of the advice.
- The agreement must identify the adviser.
- The agreement must state that the conditions regulating compromise agreements have been satisfied.
Every situation is different and consideration must be given to the financial package in addition to equally important matters. These might include confidentiality clauses (with regard to company matters and the actual contents of the agreement), restrictive covenants, outsourcing, references and tax issues.
The employment team, here at Wheelers LLP, specialise in offering tailored advice on compromise agreements to employers and employees alike. We ensure that the risks and benefits are properly considered, that the agreement is appropriately drafted to match our client’s needs and finally advise on the tax implications. Please contact us for further information on compromise agreements or any aspect of redundancies and dismissals.
