UK
If you lose your job in an investment bank, one of the first things you’re likely to come across is a compromise agreement. For those who are unfamiliar with the term, a compromise agreement is recognised by statute and is the only way employers can ensure you validly ‘contract out’ of bringing any future claim against them – ie, once you’ve signed one, forget any claims of discrimination or unfair dismissal.
A compromise agreement is usually signed following the termination of your employment, or as part of the process that brings it to an end. It usually provides for a severance payment, in return for which you agree not to pursue any claims in an employment tribunal. For it to be valid, you must take independent advice from a lawyer.
No comeback
So far, so good, except banks are now increasingly using compromise agreements as a mechanism for preventing possible future complaints to a tribunal. Even where a bank is confident that it has followed a fair process, it will prefer the employee to sign a compromise agreement to ensure there is no comeback afterwards. This can apply even when you are only receiving a redundancy payment in line with the bank’s own policy. In cases where there is a background of dispute or a breakdown in the relationship with an employee, a bank is likely to insist an agreement is entered into, subject of course to the terms of departure having been first agreed.
Simple, standard terms
So, should you be worried about signing away your rights in this way? Whilst it is the case that
compromise agreements can be written in very legalistic language and can refer to sections of Acts and Regulations which you may never have heard of, most are fairly standard and in simple terms mean you cannot claim under any statute. As long as the severance pay you are receiving is properly reflected in the agreement, and there are no unusual onerous terms, you should not be too worried.
In fact, being presented with a compromise agreement can be a good thing. Not only is there certainty of payment within an agreed timescale (usually 14 days from the date of termination or the return of the signed agreement), but the agreement will confirm the first 30k if a redundancy/severance payment is tax free. It is useful to have this recorded in a legal document for Revenue purposes. You also get the chance to have a reference attached to the agreement – which binds the bank when references are requested from future employers. This is very useful where an employee may have left under a cloud and is in danger of receiving a negative reference after leaving the bank.
Enhanced payment?
Most significantly, however, a compromise agreement will give a good employment laywer an opportunity to challenge the amount being offered under the agreement and negotiate an increase. Although banks do not operate an ‘open cheque policy’, they can be receptive to a request for an enhanced payment if there is a reasoned argument properly put.
The incentive for banks, of course, is that they will know there is no ‘coming back for more’ by the employee after the agreement is signed. But watch out. There may be some sneaky clauses in there – such as the introduction of post termination restrictions that did not form part of your original contract of employment. This could take you out of the market for many months after you have left. That is why you need to chose your legal adviser carefully!
Philip Landau is a partner at London law firm Landau Zeffert Weir. Feel free to contact him on pl@lzwlaw.co.uk or 020 7357 9494 for a free consultation on this or any other employment law issue.
my lawyer was useless. he didn;t even confirm whether my payout was good or bad in the current climate. i had to do all the chasing! be careful when choosing your lawyer as he might not be bothered to do any extra leg work for you other than simply signing the agreement for a presumably hefty fee
This lawyer is just trying to drum up business. ALL Lawyers are snakes. If you’re in this business you should have enough brain cells to negotiate-out something reasonable. What these bastards wont tell you is that the minute you hire a lawyer “publicly” – your marketability to other firms becomes compromised. Meanwhile you’re paying outrageous fees to a snake in a suit for getting his starbucks drinking secretary to search and replace names on a WORD boilerplate document. In the end-maybe a year later- you’ve lost opportunities and probably developed some blood pressure issues and that once friendly lawyer has you by the short and curlies. And what do you really have to show for it. Ain’t life grand?
Take care when choosing a lawyer. Unless you are willing to pay their hourly rate – usually 250hr – they won’t be particularly motivated to negotiate a good settlement figure. So accept any fixed fee arrangements with caution. Also be aware that the protection you get under compromises is not very strong. Employers often start spreading rumours about you to get back at you, despite the confidentiality, non derogation and reference clauses which are meant to bind them under these agreements
How is the rule at New York ? Any good lawyer would charge based on the pecentage of the payout ?
In London, you can choose your fee arrangement. Hourly, no win no fee with about 30% of the settlement going to the lawyer or a fixed fee which means the lawyer is only motivated to spend a fixed number of hours on your case and probably won’t negotiate the best figure. Most lawyers offer a free initial consultation, so it is best to talk to a few different solicitors. London lawyers will be much more expensive than regional ones, but they are more likely to have experience negotiating with City banks which helps. Even if you have the best case many banks hope you will walk away quietly and not seek damages and will fight to the bitter end. You need nerves of steel to fight a bank, but sometimes it comes down to more than just the money!
Rubbish! If an old employer does try to blackball you after they sign a compromise agreement, it is a specific breach of contract and you have the option to sue them for damages resulting from the breach or accept the breach of contract. If the breach is fundamental the contract is at an end, leaving you free to discuss the concerns you had about the company which they tried to pay you off to keep quiet about! Only bad employers would go against a legal agreement and they deserve to be exposed so other employees are not also bullied!
What about when you sign a compromise agreement based on the information the bank has given you about the redundancy process, and then discover that you were picked on a whim, at random, and the data the bank claims to have used to select you was actually put together AFTER you were selected for the chop? Doesn’t that invalidate the compromise agreement utterly? Surely a contract entered into by two parties with one party knowingly duping the other into signing on the basis of false statements, has to be null and void?
In answer to Jane’s query, you will have no rights once the compromise agreement is signed, other than enforcing the agreement itself. It is for this reason that you need to be sure of all the facts before you enter into the agreement. For example, ask to see the selection criteria/scoring PRIOR to signing on the dotted line. A good lawyer will ensure that such factors are considered before advising you to sign the agreement.
I can accept that this would be the case if you didn’t have legal representation – my point is that the bank in question falsified the information given in response to the employment lawyer’s queries in order to appear compliant with Employment Law. It was only discovered after the Compromise Agreement was signed when the HR director in charge of the cover-up catastrophically let slip the true data (accidentally sending it to a former colleague – who was then gagged from whistleblowing in yet another Compromise Agreement). Surely this undermines the whole point and principle of Compromise Agreements? They aren’t there to cover up unlawful behaviour, surely?
What, no employment lawyers out there reading this and gagging to comment? Compromise agreements are central to City life – and city folk need to understand what they’re getting into, after all. Are CA’s a licence to cheat employees by virtue of their employers paying out a derisory sum that shuts those employees up for life? How did our law get to this parlous state? Are the current pickings so rich lawyers don’t need to worry about billable hours any more? Ah well. At least someone’s profiting from the tough terrain we’re in.
Hi Jane,
In response to your comment, if a bank is trying to gag one of your potential witnesses by paying them off under a compromise agreement, you can apply for a court order for this person to disclose the agreement and give evidence. This is one of the common exclusions to confidentiality under compromises.
A court would only order disclosure if the evidence would be relevant to your case. So for example, a bank can’t threaten to seek a court order for discover of all compromises an individual is subject to in a bid to discredit them – the information must be relevant. Bear in mind, there are thousands of compromises out there, so be a little wise if a bank flipantly tells you they can get hold of any confidentiality agreement you have signed to use against you!
Dear Anon,
That is most helpful. Thank you. Unfortunately, our experience of the Court system is that if the Big Bad Bank hires a Big Bad Magic Circle firm to represent them, our tiny little application for disclosure of a single document (which we know BBB has and has suppressed because it’s massively inconvenient in termsof company ethics and compliance… )will result in an ‘ahem’ Court Master being so smitten by the eloquence of the barrister paid for (at vast expense) by the Bad Guys that the whole deal becomes a costs order against us. We’ve told the truth. We’re looking for the truth. But this happens because the myopic Masters and appeal judges don’t ‘get’ the world where money is everything. Justice? It’s a joke. As for the Information Commissioner? Don’t make me laugh. Utter waste of space.
Hi Jane,
I understand what you mean. Beyond the employment law context you hear about these Big Bad Banks getting investigated by regulators (like the current IRS investigation of UBS alleged tax violations). However, you wonder if even these governmental bodies have any real teeth. If a corporate wants to hide something they can just get out the old shredder!
Companies have deep pockets and can buy their way out of any trouble.
Anon, ‘Many a true word…’
You are absolutely right. Regulators with no teeth make no inroads on corporate misbehaviour. ‘ the document does not exist’ is the response to itemised requests. But the document did, and if there was sufficient will (and the resources to pursue it) the document could be found in one of its many electronic incarnations.
Which is where the Information Commissioner is failing utterly. He doesn’t understand that legions of highly qualified lawyers are constructing carefully-worded responses to his queries in investigations at investment banks, and in comparison the team at the IC aren’t even out of nappies, metaphorically speaking.
Our little opus showed it: bank refuses to hand over document; we discover colleague has seen document by accident – been gagged as to circumstances and content but has described it in great detail to us; we ask bank again to release this highly relevant and biographical personal data. Response; ‘document does not exist’; we ask IC to pursue; IC comes back with ‘document does not exist’. But says that if we think it might be traceable, we can take Big Bad Bank to Court. So we did. Yeah. And got royally stiffed.