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Sean Egan considers the legal issues arising from the departure of members of staff, and the need to enter into compromise agreements.

I am sure that every arts organisation has at some stage parted company with a member of staff. An employer who has agreed the terms of departure for an employee who is leaving their organisation may often heave a hefty sigh of relief, believing this to be an end. However, it may turn out to be an unpleasant beginning. Employers should think carefully about whether they need to take more formal steps to protect themselves from future litigation.

Employee rights

An employee with over one year?s service has the right to bring a claim for unfair dismissal in the Employment Tribunals if his/her treatment by the employer has been either unfair in substance or in procedure. Equally, an employee can resign and bring a claim of constructive dismissal if he/she has done so in response to a fundamental breach of contract by the employer. Damages for unfair dismissal can now be awarded up to £53,500. Moreover, any employee (regardless of length of service) can bring a claim for sex, race or disability discrimination, and discrimination on the grounds of sexual orientation. The ground of religious discrimination will be introduced in December this year. Damages in discrimination cases are unlimited. There is also new legislative protection for part-time workers and fixed-term employees. Within this ever-expanding legal framework an employee may not even fully realise his/her rights at the point of departure, and may leave amicably, only to become better informed, having the right to sue at any time within the next three months.

Beware the pay-off

The employer will normally be aware if an employee is unhappy about the way he/she has been treated, and that there is a risk of litigation. In these circumstances, it is well worth the employer considering entering into a ?compromise agreement? with the employee. A compromise agreement is a formal and binding legal agreement in which the employee agrees not to sue his/her former employer in the Employment Tribunal or Courts for any employment-related issues (excluding claims for personal injury in the workplace and accrued pension rights). Obviously, an employer will need to provide some incentive for an employee to enter into this type of agreement. If the employer is simply paying what they are contractually obliged to (e.g. notice monies and outstanding holiday) then there would be little reason for an employee to agree to give up his/her legal rights. However, in many cases an employer may well expect to have to offer some extra money to an employee, especially if he/she is agreeing to leave without, for example, a disciplinary or capability procedure being followed. It is extremely frustrating for an employer who has paid this sort of ?ex gratia? sum to an employee on departure subsequently to find themselves being sued. The employee?s earlier acceptance of that sum does not provide any defence to the claim. Employers are therefore well-advised to maximise the effect of such a payment by making it conditional upon the employee entering into a compromise agreement.

The price of advice

There are a number of formal requirements in order for a compromise agreement to be valid. It has to be in writing and must set out all of the potential claims which the employee is giving up. In it, the employee must confirm that he/she has taken independent legal advice from an identified ?relevant legal advisor? on the agreement and the effect of entering into it on his/her legal rights. Most standard agreements also ask for written confirmation from the advisor that this has happened. The independent legal advisor in question must not be associated with the employer, must have professional insurance and can be a solicitor, a trade union representative or an advisor in a legal advice centre. Normally, employers would expect an employee to take a proposed compromise agreement to a solicitor and would make a contribution towards the legal costs. £200-£250 is a fairly usual figure, although this might be lower to reflect the rates of local solicitors, or higher if there are any particularly complicated issues on which the solicitor will have to advise. But note there is no obligation on an employer to meet any of the legal fees. If the employer does not offer to make a contribution, then the employee may be less willing to take the necessary legal advice in the first place.
The concern that employers sometimes have in suggesting a compromise agreement is that, when the employee takes legal advice, he/she may become aware of new potential claims against the employer. Since an employer is only likely to be suggesting a compromise agreement where it feels there is or may well be a problem I feel this is a risk worth taking. An employer would otherwise be hoping that the employee decided not to sue rather than knowing for sure that he/she could not.

Happy endings

There are termination situations where compromise agreements are not necessary, but in the majority of cases, they are an extremely worthwhile protection for employers. Most solicitors who undertake specialist employment work should be able to provide an employer with suggested wording for the agreement for a minimal fee. Overall, the costs associated with entering into a compromise agreement are likely to be a small price to pay to ensure that a former employee is definitively a thing of the past.


Sean Egan is Head of the Arts & Media Department at Bates, Wells & Braithwaite Solicitors, e: s.egan@bateswells.co.uk

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