Are your compromise agreements compromised? A question for the Agony Uncle...

Dear HR Uncle,

We have had a difficult time with an employee recently, the result of which was that we decided to terminate his employment. The employee has made complaints about unfair dismissal because we did not follow a process before terminating his employment on grounds of his conduct. We have since agreed to make an ex gratia payment to this employee in return for him entering into a binding compromise agreement. We have used compromise agreements a few times before with other employees, but are particularly concerned about this employee. He is quite a trouble-maker and we are eager to settle this dispute without it coming back to bite us. Are there any tips you can give us to ensure that the compromise agreement is binding upon him?

Yours, Concerned about Compromise Agreements

 

Dear Concerned about Compromise Agreements,

Following the recent case of Hinton v. University of East London, you should now assume that it is a requirement that your compromise agreement should expressly set out the reasons for the causes of action that you are settling, to ensure that the compromise agreement will be regarded as binding by an employment tribunal. To be binding, a compromise agreement must satisfy the requirements of section 203(3) of the Employment Rights Act 1996 (“ERA”), which provides that:

  • the agreement must be in writing;
  • the agreement must relate to the particular proceedings [our emphasis];
  • the employee or worker must have received advice from a relevant independent adviser as to the terms and effects of the proposed agreement;
  • there must be in force when the adviser gives the advice, a contract of insurance…covering the risk of a claim by the employee…;
  • the agreement must identify the adviser; and
  • the agreement must state that the conditions regulating compromise agreements under the ERA are satisfied.

It was section 203(3)(b) which was at the heart of Mr Hinton’s case (i.e. that the compromise agreement he entered in to did not specify the particular proceedings which were being compromised).

In Mr Hinton’s case, he claimed that he was subjected to a detriment for making a protected disclosure. Following negotiations with his employer, he agreed to enter into a compromise agreement which stated in the opening paragraphs (known as “the recitals”) that he was “agreeing to compromise all his claims”. As is normal in many compromise agreements, the employer went on to list various causes of action, but, importantly, it did not expressly make reference to a claim under Section 47B of the ERA – the claim that an employee has been subjected to a detriment for making a protected disclosure.

Despite having signed a compromise agreement, Mr Hinton then sought to continue with his action that he had been subjected to a detriment contrary to Section 47B of the ERA. The Employment Tribunal decided that his employer had not compromised Mr Hinton’s Section 47B claim and that he could therefore bring such a claim before the Employment Tribunal. The EAT disagreed saying that the recital at the start of the compromise agreement did cover all claims and that the list elsewhere in the agreement was not an exhaustive list.

The Court of Appeal has since reinstated the Employment Tribunal’s original decision and confirmed that a compromise agreement has to specify each particular statutory claim that is being compromised or at the very least set out the factual basis of the claim being compromised. The “catch-all” recital is no longer sufficient to compromise claims which are not listed nor does that actual list set out what the “particular proceedings” being compromised are.

Assuming that your employee has only an unfair dismissal claim you should clearly set out in the recital to your compromise agreement, that he has made a claim or complaint of unfair dismissal. You should also clearly describe the particular proceedings your employer is agreeing to waive (i.e. unfair dismissal claims) in the waiver of claims clause. You can still choose to then have, in a separate section of the compromise agreement, a list of all other claims and the ‘catch-all’ paragraph mentioned above, provided that you have specifically referred to the particular complaints or proceedings which are being compromised.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.