One of our senior employees is leaving the company under a bit of a cloud. We have agreed to enter into a compromise agreement with him. Now he is asking the Company to waive claims against him and to provide an indemnity for him if he is sued by a client in the future. Should I agree to this? It isn’t in our standard compromise agreement and I have not been asked to do this before.
Waiving claims against an employee
Generally employers are reluctant to agree to requests like this because:
It is not standard market practice for employers to waive claims against employees in a compromise agreement. Whether or not you decide to agree to the employee’s request will depend on the circumstances and the bargaining positions of the parties.
Where there is no obvious reason for the request (for example, it is a normal redundancy or another situation where there is no known wrongdoing by the employee), then it would seem reasonable to refuse the request. Perhaps you can get to the bottom of it by asking the employee what he is particularly worried about as this might influence your decision.
You say that the employee has left under a bit of a cloud. If, for example, you have dismissed the employee on the grounds of misconduct it is understandable that the employee would want a waiver of claims in respect of the alleged misconduct but you may be unwilling to waive any other claims against him.
There are various types of waiver, and we summarise below the types most commonly sought by employees during exit negotiations with their employers.
What kinds of waiver are there?
Indemnifying Former Employees
Employees, particularly senior employees and former directors, will sometimes request an indemnity in relation to claims (and costs associated with such claims) brought by third parties in relation to matters associated with their employment, or to assist the company in relation to regulatory or other investigations.
Whilst it is fairly common for employers to agree to reimburse the employee for expenses (other than legal costs) incurred in providing such assistance, employers should exercise caution about being seen to be paying the individual for their assistance because this might damage the individual’s credibility if they are needed to provide witness evidence.
It is worth considering here whether you can deal with the concerns of the employee by agreeing to keep directors’ and officers’ insurance in place. In most cases, this should be sufficient protection, unless there is a specific concern regarding a matter which arose during the employee’s employment. Again, it is worth asking the employee why they would need this sort of indemnity if they are already covered by the directors’ and officers’ insurance.
If you do decide to agree to an indemnity, it is worth considering whether:
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