07 June 2005
The Court of Appeal gave a decision last month which should make us all check our precedent compromise agreements. In Hinton v the University of East London, the Court of Appeal found against the University regarding the drafting of its compromise agreement. It upheld the tribunal’s decision to allow the employee, a lecturer at the University, to continue with his tribunal claim although Dr Hinton had signed up to a binding compromise agreement compromising all claims against the University. This was despite the claim having been raised at the time of entering into the agreement.
The claim was for detrimental treatment in relation to the raising of a number of alleged qualifying protected public interest disclosures in the period 1999 to 2001. The problem was that the agreement did not specifically mention this particular type of claim, brought under section 47B of the Employment Acts Right 1996. What it actually said was:
"This Agreement is made without any admission of liability on the part of the University on the basis that its terms are in full and final settlement of all claims in all jurisdictions (whether arising under statute, common law or otherwise which the employee has or may have against the University officers or employees arising out of or in connection with his employment with the University, the termination of his employment or otherwise including in particular the following claims which have been raised by or on behalf of the employee as being claims which he may have for: …."
There was then a list of numbered paragraphs itemising 11 particular kinds of claim. However, there was no mention of section 47B of the 1996 Act.
Although there was a clear omission on the part of the University in failing to refer to the claim when drafting the agreement (the Court of Appeal making criticism accordingly), the case raises issues of general concern for all of us when drafting compromise agreements. Importantly the Court of Appeal made much clearer the drafting requirements on "full and final settlement" clauses.
Compromise agreements tend to arise more on termination of employment and employers are then alive to the need to specifically compromise any claim of unfair dismissal, breach of contract, redundancy pay or unlawful deductions. Most employers are also alive to the need to compromise any related discrimination claim. As always, however, the devil is in the detail and it is notoriously difficult to be absolutely sure that an agreement covers off all potential claims as well as actual claims. In addition to the more obvious types of claim on termination, there may for example be a victimisation claim lurking in respect of a prior discrimination claim and there are a whole host of detriment claims ranging from claims arising out of union membership through to a claim arising out of a failed request for flexible working.
The clear lesson regarding statutory employment claims that must be learnt from this case is that employers must not rely upon the provisions that may be in existing agreements which "catch all" or sweep up claims in addition to the obvious ones that have been specified. Simply because an employer is parting with a large sum of money and putting in place well drafted general release provisions (as much loved by US lawyers), that will not preclude a statutory claim in an employment tribunal.
The Court of Appeal went further by stating what the "good practice" should be for employers in drafting compromise agreements. What it said was that whether or not the claims in question are subject to tribunal procedures already, it is good practice for particulars of the claim to be set out in the form of a "brief factual and legal description". It is unclear from the case whether the Court of Appeal is laying down legal standards or mere good practice which is not a legal requirement. However, we would urge caution and in future employers should set out as far as possible a very brief summary of the facts surrounding the claim and clearly identifying the legal claim concerned. The Court commented that the legal basis of the claim could be dealt with either by a generic description such as "unfair dismissal" or by reference to the particular section number of the statute giving rise to the claim.
To end with a further note of caution, it is worth remembering that the legal requirements surrounding the drafting of compromise agreements sit uncomfortably with the commercial reality of reaching severance deals. With careful drafting each time it does appear still to be possible to compromise all possible claims despite the fact that the whole practice is frowned upon by the courts. Indeed Lady Justice Smith made the comment that, "I would add that I would not regard it as good practice for lawyers to draft a standard form of compromise agreement which list every form of employment right known to law. Compromise agreements should be tailored to the individual circumstances of the instant case. Only in that way can the purpose behind this provision be fully satisfied."
What the Court of Appeal fails to recognise is the need in "individual circumstances" for all claims to be compromised and for the employer to have that certainty before parting with its money. Unfortunately, that legal certainty remains elusive although we believe our amended precedent is as close as you can get. Please contact us before entering into another compromise agreement, especially if your precedent is based on ours. We have made a number of changes. Also remember, to be totally effective, the precedent must be correctly applied to the specific circumstances of each case.