UK: When is a Compromise Agreement not a Compromise Agreement?

Last Updated: 2 February 2006
Article by Sejal Raja

Sejal Raja reports on a Court of Appeal Judgment handed down recently which deals with the requirements necessary to achieve a valid Compromise Agreement.

For Compromise Agreements to be valid they need to comply with Section 203 of the Employment Rights Act 1996 ("ERA") which requires, amongst other things that the Agreement should relate to the particular proceedings that are being compromised.

The case of Hinton –v- University of East London considered whether a Compromise Agreement related to particular proceedings. The facts of the case are that Dr David Hinton raised several grievances against his former employer, the University of East London. These grievances were capable of amounting to public interest disclosures and therefore potentially gave him protection under the whistle-blowing legislation.

Effect of a general waiver …

Dr Hinton subsequently took voluntary redundancy. He then entered into a Compromise Agreement with the University, which was expressed to be "in full and final settlement" of all claims in all jurisdictions (whether arising under statute, common law or otherwise) and listed a number of causes of action which were expressly included. However, this list did not include whistle-blowing or any mention of Section 47B of the ERA, which is the piece of legislation that deals with claims arising from a public interest disclosure.

Dr Hinton subsequently brought a claim in the Employment Tribunal on the grounds that he suffered a detriment as a result of his whistleblowing. The preliminary question that arose was whether he was barred from bringing such a claim by virtue of having signed the Compromise Agreement.

… not good enough

The Court of Appeal held that a general waiver was insufficient to compromise Dr Hinton’s whistle-blowing claim. The Court of Appeal held that to be valid, a Compromise Agreement must satisfy the conditions set out in Section 203 ERA; one of these is that "the Agreement must relate to the particular proceedings". The Court of Appeal held that for this condition to be satisfied, the parties have to expressly identify the particular proceedings to which the Compromise Agreement relates, either by generic subscription, e.g., "breach of the Working Time Regulations 1998" or a reference to the section of the relevant statute, e.g., "Section 98 of the Employment Rights Act 1996" (a general right to complain of unfair dismissal). It was not enough to use a rolled-up expression such as "all statutory rights" or to refer merely to the title of the statute, e.g., "the Employment Rights Act 1996" and assume that such a reference would effectively settle all and any claims under that Act.

Good practice recommendations

Lord Justice Mummary elaborated further and said that if actual proceedings are compromised, it is good practice for the particulars of the proceedings and of the particular allegations made in them to be inserted in the Compromise Agreement in the form of a brief factual and legal description. If the compromise is of a particular claim raised which is not yet the subject of proceedings, it is good practice for the particulars of the nature of the allegations and the legal framework under which they are made to be inserted in the Compromise Agreement in the form of a brief factual and legal description. As no particular statutory claim was referred to in Dr Hinton’s Compromise Agreement and no particular description of the legal nature or factual basis of any potential whistle-blowing proceedings was stated, the Court unanimously held that the Agreement did not effectively compromise Dr Hinton’s whistle-blowing claim.

This decision means that employers will have to be careful when drafting Compromise Agreements, particularly if their practice is to rely on standard company Compromise Agreement templates. The decision makes it clear that the "catch-all" provisions regularly used in Compromise Agreements will no longer be sufficient. In order to be confident that all potential future claims are truly compromised, employers will have to tailor the agreement to the individual whose employment has been terminated, ensuring that any issues, concerns or grievances raised prior to the signing of the agreement, which could give rise to a future claim, are specifically mentioned in the body of the Agreement.

This accords with practice adopted by RadcliffesLeBrasseur some years ago, although we may now recommend that more detail be given.

The need to detail the claims could give an employer a difficult decision. Suppose the employer is aware of a possible claim, say for discrimination, when the main issue is perceived as unfair dismissal. Do you identify the claim and refer to it in the Compromise Agreement? By doing so the compromise will be more effective but you risk the solicitor advising the employee taking advantage of this and seeking to negotiate a higher settlement.

Conditions which must be satisfied for a Compromise Agreement to be binding:

  • it must be in writing;
  • it must relate to the particular proceedings;
  • the employee or worker must have received advice from a relevant independent adviser as to the terms and effect of the proposed agreement and, in particular, its effect on his/her ability to pursue his rights before an Employment Tribunal;
  • there must be in force, when the adviser gives the advice, a contract of insurance covering the risk of a claim by the employee or worker in respect of loss arising in consequence of the advice;
  • the agreement must identify the adviser, and
  • the agreement must state that the conditions regulating Compromise Agreements are satisfied.

Age Discrimination

Banning age discrimination could be the major change in employment law in this decade. We have been asked what we are doing about it. The answer is that we intend to wait until the end of the consultation period, then report in a future "Update". We are also planning a workshop next February.

© RadcliffesLeBrasseur

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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