Two recent cases have considered the effect of compromise agreements in TUPE cases where claims are made against more than one employer.
In Optimum Group Services Plc v Muir the Employment Appeal Tribunal looked at the situation in which an employee with a claim arising out of a TUPE transfer reached a settlement with one transferee (in a case where he was claiming against the transferor and a number of other potential transferees), while carrying on against other respondents. At the tribunal hearing he did not disclose the settlement, which the Employment Tribunal decided should not be deducted from the compensation he was awarded. It included a compensatory award of £23,668.84, after applying a 50% deduction to reflect the possibility he would have been made redundant in any event.
The Employment Appeal Tribunal overturned this decision, remarking that the compensatory award “should not over compensate the claimant. To do so could hardly be said to be just or equitable“. It ordered the claimant to disclose the £20,000 he had received under the compromise agreement, and ruled that it should be deducted from the figure he could recover for loss of earnings. It did, however make it clear that under Norton Tool Co Ltd v Tewson, notice pay would continue to fall outside the principle that there should be no double recovery of loss of earnings.
Lady Smith summarised the principles governing the award of compensation as follows: Continue reading
It is an often-heard maxim in contract law that a party cannot seek to claim the benefits of a contract which he has breached. While that is a rather simplistic statement and is, in practice, subject to numerous qualifications and exclusions, the decision of the High Court in Imam-Sadeque -v- Bluebay Asset Management (Services) Limited is an example of how the general principle can apply, even in the most complex of cases.
Heard over seven days and with the judgment of Mr Justice Popplewell running to 235 paragraphs in 61 pages, the case concerned the departure of Mr Imam-Sadeque from Bluebay. As is common with executive contracts there were “good leaver” and “bad leaver” provisions. Resignation would make Mr Imam-Sadeque a “bad leaver”. The distinction was particularly important for him since, as a good leaver, he would be able to exercise share options worth £1.7m. Terms were therefore set out in a compromise agreement. Continue reading
Tamang v ACT is an illustration of the importance of careful drafting – and of the importance of not making assumptions. The case arose after a pair of security guards claimed that they had been unfairly dismissed for a TUPE related reason after a service provision change, and that they had not been consulted about the change. They started claims against both their old employers and the new service providers, but then reached an agreement to drop their claims against the original employers, and signed settlement agreements which only named those original employers. The employees then carried on the proceedings against the new service providers, who sought to rely on the compromise agreements, arguing that they acted as a release against all the respondents.
The Employment Appeal Tribunal rejected that argument, holding that the agreement was a valid form of settlement, but only against the respondent actually named; it was not in fact a release of the respondents but a promise not to continue or start new proceedings against a named party.
The EAT referred to Chitty on Contracts (widely regarded as the leading work on contracts subject to English law) with particular reference to release, accord and satisfaction. Continue reading
Proposals regarding settlement agreements from earlier this year have been fleshed out in a new government paper. Avid readers will recall talk of “protected conversations” – these seem to have died a death for now. The Government’s response to consultation seems to accept that such a concept could add to the administrative burdens on employers and create a new area of contention which could be “a field day for lawyers”. The response instead concentrates on “settlement agreements” to replace compromise agreements. The question is whether this will amount to more than just a change of name.
The paper sets out a proposed model wording for a settlement agreement, which doesn’t differ all that much from the sort of wording seen in compromise agreements in common use. This is not too surprising, given that any wording must be sure to satisfy the requirements of s203 of the Employment Rights Act 1996, which permits contracting out from employment rights in limited circumstances. Moreover, the standard wording sets out a long list of potential claims which could be covered. Many compromise agreements look pretty cumbersome, it is true, but that is for a number of reasons – some excessive caution perhaps, but many issues are often dealt with over and above statutory employment claims. Pensions and personal injury claims are frequently carved out. Benefits in kind and so on are dealt with. Employers want post termination restrictions and confidentiality obligations added or reaffirmed. The tax position needs to be dealt with. The employer wants written confirmation that the necessary legal advice has been given. The model agreement put forward covers some, but not all of these, and extends, with its guidance notes, to 15 pages.
More specifically we now have the answer to the question of contribution to the employee’s legal costs. Continue reading
In our June newsletter I outlined what changes were to be expected as a result of the Government’s review of employment law. If anything, what has now emerged is an even more diluted version of what was anticipated in the sense that the proposed changes will be the subject of numerous consultations, rather than firm decisions to implement changes. The "fire at will" Beecroft proposals are nowhere to be seen but those which remain are unlikely to provide radical alterations to the existing employment tribunal provisions (except perhaps for the introduction of fees – see our July round-up).
It is clear that Vince Cable has had his way with the BIS press release emphasising that the UK has a lightly regulated, flexible labour market, considered by the OECD to have the third lowest employment protection among 20 OECD countries and 10 emerging countries.
Introducing the changes Mr Cable said
We have been looking across the range of employment laws with a view to making it easier for firms to hire staff while protecting basic labour rights.
Our starting point is that Britain already has very flexible labour markets. That is why well over one million new private sector jobs have been created in the last two years, even when the economy has been flatlining.
But we acknowledge that more can be done to help small companies by reducing the burden of employment tribunals, which we are reforming, and moving to less confrontational dispute resolutions through settlement agreements.
The consultations will cover: Continue reading
During the second reading of the Enterprise and Regulatory Reform Bill on 11 June Vince Cable announced that the Government wants to promote and increase the use of agreements relating to the termination of employment as an alternative to employment tribunal proceedings. No details were provided but the intention is to "ensure that the offer of a settlement cannot be used against an employer in an unfair dismissal case". But, hang on, isn’t that what a compromise agreement under the current legislation does and are these new settlement agreements going to be confined to unfair dismissal claims?
It has been suggested that, for small employers, there will be no need to obtain legal advice. But small employers do not need legal advice as matters stand: it is employees who must obtain advice in order for an agreement to be binding. Clearly, employees might not know whether a proposed settlement is fair and reasonable given the circumstances and the requirement to obtain legal advice is intended to address this understandable lack of knowledge. However, the Government has suggested that employees will continue to enjoy full employment protection because they can reject a settlement offer and proceed to an employment tribunal. Continue reading
The government seemed to find it mildly surprising that over half the respondents to its consultation used compromise agreements often; most of those directly involved with employment law in practice would not. But there is a cost involved for employers every time one is used, especially since the decision in Hinton v University of East London CA (2005 EWCA, Civ 532) which had a big impact on drafting practice and then the advent of s.147 of the Equality Act 2010, which undoubtedly had unintended consequences, even though the government stoutly maintains that it is “fit for purpose”.
Hinton made it clear that compromise agreements must identify each and every claim that is being settled – thus the tendency to include a long list of possible claims in agreements to make sure that nothing is missed out, or the need to spend a lot of time identifying all possible claims to ensure that all necessary “i”s are dotted and “t”s crossed – meaning that agreements are generally cumbersome, and sometimes expensive to draft. Continue reading
Compromise agreements made the BBC News at Ten tonight with Robert Peston’s report that Andy Coulson received “hundreds of thousands” from News International while working as press officer for Prime Minister David Cameron.
The function of a compromise agreement is to prevent an employee who might bring a claim against his or her former employer from doing so. It’s an essential element of such an agreement that the terms remain confidential between the parties. Any properly drawn compromise agreement will ensure this. The idea is that a payment is made which represents a fair settlement without the need for the issues to be played out in public tribunal proceedings. However, if those issues are not subject to judicial scrutiny and the fact of the payment is disclosed, it’s easy for people to take the view that the employer is acknowledging wrongdoing by making the payment. Often that is not the case. Continue reading
For many years it has been the practice of the Inland Revenue, now HMRC, to publish “extra-statutory concessions”. These effectively correct errors in and omissions from legislation which would result in tax being collected where it would be inappropriate.
The practice has always been of questionable legitimacy. For HMRC to have discretion, even via published “extra statutory concessions”, to decide that tax should not be payable when the law says it should does not fit well with contemporary ideas of law enforcement. In order to regularise the position, HMRC has therefore engaged on a process of formalising extra-statutory concessions into law wherever possible. As part of that process a new statutory instrument, the draft Enactment of Extra-Statutory Concessions Order 2011, has been drawn up. It came into effect on 6 April 2011. Amongst other things it codifies a significant employee related concession.
The relevant extra statutory concession relieves an employee or ex-employee from income tax in respect of monies paid on their behalf by their employer to cover legal costs incurred by the employee exclusively in connection with the termination of his or her employment, provided the costs are paid by the employer pursuant to a court order or direct to the lawyer under the terms of a compromise agreement.
While in principle this codification is to be welcomed, it is worth noting that as drafted the regulations are less beneficial to employees than the concession they are designed to replace. The regulations as drafted apply only if the compromise agreement is made under the Employment Rights Act 1996, for example to settle an unfair dismissal claim. They therefore do not apply if the compromise agreement is under the Equality Act 2010 and they do not apply to legal fees paid in connection with an ACAS COT3 conciliation. This may turn out to be a mistake. However unless the regulations are amended (they have been enacted as drafted) the current position is worse for at least some employees than it has been for many years under the concession.
The general rule is that informal “out of court settlements” of employment disputes are not legally binding in the sense that they cannot exclude an employee’s right to take the matter concerned to an Employment Tribunal. As is well known, one exception to this general rule is a formal “compromise agreement”. Provided it complies with conditions set out in the Employment Rights Act 1996, a formal compromise agreement settling an employment dispute will normally be fully binding on both parties.
The main conditions which must be fulfilled are:-
- that the agreement must be in writing;
- that the employee must have received advice from an approved independent adviser; and
- that the agreement must relate to “particular proceedings”.
This last condition means that a generalised “full and final settlement” agreement cannot be a fully valid compromise agreement (a few years ago the government said it was going to remove this condition but it is still there – and there is no sign of it being removed: those interested may care to look at Hansard HL 30th April 2002, col 572).
An important practical point following the repeal/revocation of previous anti-discrimination legislation by the Equality Act 2010 is that any compromise agreement made after 1st October 2010 should generally ensure that it specifically refers to settling any claims under Equality Act 2010. Of course if, as will generally be the case for many months/years to come, the employment concerned began before 1st October 2010 it should also refer to the previous legislation which will continue to apply in respect of claims arising from events which took place before 1st October 2010.
This is an item from our October 2010 newsletter. If you are interested in subscribing to our monthly newsletter please click here.