Compromise Agreements

Drafting employment contracts and compromise agreements

A Court of Appeal decision highlights the need for businesses to take care when drafting employment contracts and compromise agreements. The court held that an employer that exercises an express contractual right to terminate with a payment in lieu of notice (PILON) must still pay up if it subsequently discovers that the employee had done something that would have entitled it to dismiss summarily.

However, an employer can take steps to avoid being in this situation, for example, by:

  • Including a provision in its PILON clauses that enables it to recover the PILON (or avoid paying it) if any earlier repudiatory breach by the employee comes to light.
  • Making it a condition of any compromise agreement that the employee has not committed any repudiatory breaches of contract (for example, see clause 13 of Standard document, Compromise agreement (long form).

This checklist sets out the steps a business should follow when considering dismissing an employee.

For further information, please contact our Employment Law Team.

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