Notice periods: payment in lieu and compromise agreements
Payment instead of working notice and setting out financial and other terms in an agreement.
An employee may simply work out a period of notice. They can also take payment in lieu, or have a compromise agreement with their employer.
Payment in lieu
Employers who don't need employees to work out all or part of the notice period can make a payment in lieu of notice, if the contract allows for it or the employee is willing to accept it. This should cover all the benefits the employee would otherwise have enjoyed during the notice period, including pay, bonuses, accrued holiday, etc.
It is important to take legal advice when deciding whether or not to include a payment in lieu provision in the contract, as its inclusion can have a knock-on effect on your ability to enforce restrictive covenants against the employee. Restrictive covenants are designed to prevent employees from disclosing or using confidential information, trade secrets, etc, and/or soliciting or dealing with customers during a specified period after leaving the business. Restrictive covenant law is challenging, and it is recommended that you take legal advice prior to drawing any up. There are also important tax provisions.
Compromise agreements and conciliated agreements
A compromise agreement (also called a settlement agreement) is a single agreement setting out the financial and all other terms on which the employment relationship will end. The compromise agreement must meet certain requirements to be viewed as legally binding including; being in writing, signed by both parties and the employee must have had the benefit of independent legal advice. The employee is then unable subsequently to make a claim in the courts or an industrial tribunal.
A conciliated agreement is a legally binding agreement, facilitated through the Conciliation Service of the Labour Relations Agency (LRA), between an employer and employee to settle an existing or potential claim to the Industrial or Fair Employment Tribunal. As with a compromise agreement, the employee agrees to 'settle out of court' by accepting the financial or other compensation that the employer is offering in return for signing away their right to pursue their claim. This service is provided free of charge by the LRA.
Compromise or conciliated agreements can be useful in circumstances where the employer wishes to avoid the publicity, costs, or uncertain outcome of a tribunal or court case.