The tiny provision that could save you millions

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A minor adjustment in your employment agreement could end up saving your organisation millions of dollars down the line, claims one top employment lawyer.

Peter Chemis is a partner at Buddle Findlay – he says most employment agreements contain a fairly standard technical redundancy provision which could be significantly improved without any strenuous effort.

“Essentially, technical redundancy provisions say that if the employee is made redundant, the company will provide three months’ pay – but if they’re offered the same or similar position by a purchaser, they don’t get redundancy,” explains Chemis.

While those provisions aren’t uncommon, Chemis says a slight amendment could save organisations considerable cost and effort if they ever find themselves in a position to sell.

“Where they can, employers should have technical redundancy provisions with a little bit of fluidity in them,” he advises. “So instead of saying ‘the same or no less favourable,’ you might say ‘similar overall’ which just gives the purchaser a bit more flexibility.”

According to Chemis, the flexibility aims to counteract tension that can arise in acquisitions when purchasers don’t want to employ staff from the vendor under previously agreed terms and conditions.

If the purchaser declines to employ the staff under the same or favourable conditions, the cost of redundancy often falls on the vendor and many sales fall through as a result.

“That’s always a natural tension – particularly with a foreign buyer – because they have different labour laws and don’t always understand ours,” he tells HRM.  “In those cases, the vendor may not want to sell because the redundancy cost is too high,” explains Chemis.

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