Why is a compromise agreement needed?

ceh209

My firm have just announced some redundancies will be made. Fortunately I'm not at risk, but something struck me as odd - all the redundancies will be done by compromise agreement. Why would they do this?

(Possible things that may be relevant)
- Redundancy pay will be as statutory, but with no weekly cap
- Some of this will be held back if you don't agree to some clause (confidentiality maybe, not sure)
- There will be PILON, no notice to be worked
- You only get gross rather than net PILON if you sign the CA (I didn't understand this bit)
- Benefits will continute until the date the notice period would have run to


Are they doing something dodgy?

Pricivius

A compromise agreement ties up all the loose ends and draws a line under things. By making people redundant, companies invariably annoy the people who may then decide they have a claim as they have nothing to lose and it's free to claim. The company then ends up facing claims and having to defend them, no matter how spurious they are.

So... instead, get everyone to sign a compromise agreement and job done.

It's possbile that the company has something to hide, but it could just be that they need to bring everything to a conclusion and start again. If you think about it, redundancies usually mean the company is financially struggling, so it would be very helpful for them to be able to add up the cost of the redundancy process and move on. If there are potentially outstanding liabilities in the form of claims which could come in over the next three months, the company cannot move on.

Forgot to add - if you have a PILON clause in the contract, the PILON must be taxed. If not, the company can attempt to pay it without tax by claiming it is damages for loss of job rather than PILON. HMRC may look into it, though...

ceh209

I think the 'gross' PILON is being done by increasing the payment and then taxing it, in order to give you what you would have got if the lower amount wasn't taxed, IYSWIM.

Thanks for the info though. The company isn't struggling financially, they're just not making as much profit as they would like. Typical of the industry I'm in unfortunately... :mad:

Uncertain

You cannot be made to sign the CA and you will in any case have to receive independent legal advice before doing so.

Therefore there needs to be some incentive to sign and obviously that need to be legal!

Normally PILON is taxable (although this is not straightforward) so it could be that they think that covering the tax cost is incentive enough.

Ultimately it depends on the strength of your bargaining position.