If you are made redundant from an investment bank, you will come across a compromise agreement. There are hundreds of these floating around the City at any one time. 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 – i.e. once you’ve signed one, forget any claims of discrimination or unfair dismissal. For it to be valid, you must take independent advice from a lawyer.
So what are the main points that you need to look out for in a compromise agreement? Here is a snapshot:-
* Make sure that the first 30k of the severance payment is free of deductions for compensation payments (this includes any redundancy payment that’s being made). In some circumstances, your notice period can be included in the 30k sum but only if there is no PILON (pay in lieu of notice) clause in your contract of employment. You will have to give a tax indemnity in which you warrant to pay the tax back if the Revenue later decide that deductions should have been made, but this is standard and it is extremely rare that the indemnity would kick in.
* You may want a non-derogatory clause, so that your employer cannot bad-mouth you. Not all banks will agree to this as it’s difficult for large scale employers to police, but most should at least agree to “using their best endeavours” and in some cases will agree to state that you cannot be bad-mouthed by named specific individuals.
* An agreed job reference should be attached to the compromise agreement wherever possible, together with a clause that no unfavourable oral references will be given. Remember, an employer is not otherwise obliged by law to provide a job reference, and may provide a detrimental one if you leave under a cloud.
* Make sure that no post- termination restrictive covenants are introduced in to the compromise agreement unless you have already agreed to these in your contract of employment. Even where you do have previous restrictive covenants, you may want to consider asking for a variation in your compromise agreement. At worst, restricted covenants may say you can’t work for competitor firms for the next 12 months or poach clients for the same period, although such covenants are often difficult to enforce by banks.
* Make sure your compromise agreement doesn’t hamper you stating the reason for your departure to future employers at interview.
* Try and agree an itemised list of company property to return, so there can be no dispute later.
* Make sure that the agreement properly reflects the outstanding bonus that’s due to you, especially where the bonus is being paid as deferred stock after you leave the Bank. Make sure any stock options and share awards are also covered.
* Ensure all accrued but untaken holiday is included in the agreement. Note that you will be taxed on this.
* If you are not asked to work your notice, you will be entitled to be paid in lieu of that notice period and this should be reflected in the agreement.
* Legal fees- make sure the contribution is sufficient. Most banks will contribute up to 500 plus VAT for your lawyer’s fees, but some are less generous.
* You will often be asked to waive any rights to a personal injury claim that you may have. It is not possible to do this for future claims that you may be unaware of, but you can be asked to validly exclude known PI claims up to the date of the compromise agreement. Make sure you don’t do this if you think you may have a work related PI claim.
* You will be asked to keep the compromise agreement confidential. This is important and you should resist the temptation to talk to colleagues about what you are receiving under the agreement.
* Your termination date may be many months away. In these circumstances, you will often be asked to sign the 1st compromise agreement now and a 2nd one at the time of the termination. Such “2 tier” agreements do leave you exposed somewhat as you will have already compromised your rights after the first signing but cannot receive benefits under the agreement until the 2nd signing. There is no way around this.
* You may have another job to go to at the time your compromise agreement is signed, yet you could be asked to warrant that you have not been offered a new job. You need to inform your lawyer if you do have a new job as there may be an opportunity to amend this clause- or you could otherwise be in breach.
* You will often be given a deadline to sign the agreement. Don’t be too phased by this as it can often be extended. You shouldn’t let your employer pressure you in to accepting a settlement that you may later regret.
* Above all, be aware that once you sign the compromise agreement, there is no going back! Together with your employment lawyer, you need to decide whether the amount of compensation on offer properly reflects your entitlement. In genuine redundancy situations, your options will be more limited, but in other cases there will be scope to negotiate on the severance sums. It will be too late, however, once you sign the agreement.