Compromise Agreement

Anonymous

I believe you are on quite difficult ground in trying to secure and rely on a Compromise Agreement in relation to TUPE. You may be aware of the authoritative EAT case of Thompson ?v- Walon Car Delivery (1997) which examined the effectiveness of a CA in relation to TUPE, having regard to Reg. (8).1 and Reg. 12.

Reg. (8).1 only refers to unfair dismissal. If the principal reason for the dismissal is related to TUPE, as in your case, then a dismissal will be unfair irrespective of whether it occurs before or after the transfer. Claims other than unfair dismissal may be compromised, however, by virtue of the ERA 1996 but such agreements may then contravene Reg. 12 which states that any agreement will be void as it is not permissible to contract out of TUPE. This gives rise to doubts as to whether any other claim for a breach of contract, etc., can be compromised in the same agreement.

If you are going down this route, you must ensure that St. Paul Syndicate Services Limited conclude all aspects of the CA prior to the transfer bearing in mind you will not be a signatory to it as you are not the employer of the employee concerned. You should also then ensure that you are indemnified by the transferor against all subsequent claims.

The alternative (and in my view, safest route) is to allow the transfer to occur, thereby satisfying TUPE. After which you should conduct a business review of your staffing requirements in case you have any suitable alternative opportunities. If not, then the normal redundancy requirements (consultation, selection, etc.,) will kick in and result in a `clean? dismissal if done correctly. At that stage, a Compromise Agreement can be arranged between you and your new employee which can embrace all the elements you require. Neither party, however, should enter into a `contract? with the transferring employee regarding an undertaking re: pay in lieu of notice as this could then be subject to statutory deductions. The associated costs can then be charged back to the transferor.

One other aspect which must not be overlooked is the requirement for the transferor to consult with the employee regarding the `measures? you are proposing to take as the transferee after the date of transfer.

Although I have gone down this route with no comebacks, I cannot guarantee its success in cases outside my control. In view of the potential complications, both you and the transferor should seek legal advice prior to the transfer date.

I hope this response helps. Best of luck.

Jane Byford - Martineau Johnson
Online advisor - 9 posts

Dear Shirley

Thank you for your recent query.

From the information you have provided it sounds like although the dismissal will be connected with the transfer it will be for an economic, technical or organisational reason and therefore will be potentially fair, provided that correct procedures etc are followed. However, you would be wise to protect your business? position by the use of a Compromise Agreement.

One point I ought to mention is that although most claims under TUPE can be compromised, it is not possible to compromise a claim in relation to the transferor?s failure to consult. You, therefore, need to ensure that proper consultation takes place.

Whether the £30,000 can be paid free of tax will depend on whether it is genuinely compensation for loss of office or whether it is a contractual payment. If there is a payment in lieu of notice clause in the employee?s contract of employment, then this part of the payment will be taxable. Any payment in respect of outstanding holiday, outstanding pay and benefits etc will also be taxable. Only the genuinely compensatory element of the payment will be tax free up to £30,000 and it is important that this figure is identified separately in the Compromise Agreement, that it is stated as being a non-contractual termination payment and that the parties understand that it can be paid tax free. To protect your business I would also recommend inserting a tax indemnity.

It is always best to list every type of claim that is to be compromised in the Compromise Agreement and to make it clear that the employee will not be entitled to bring any claim in respect of holiday pay etc as well as the normal statutory claims.

I would be more than happy to draft a Compromise Agreement for you should you so wish and anticipate that the cost would be in the region of £250 to £500 plus VAT, depending on the complexity. Please contact me at jane.byford@martjohn.com if you would like me to carry out this work for you.

Yours sincerely

Jane Byford

Partner

Martineau Johnson