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:
29. Section 118 of the Employment Rights Act 1996 provides that where a tribunal makes an award for unfair dismissal, the award is to include a compensatory award calculated in accordance with other provisions which include s.123. Insofar as relevant, s.123 provides:
“(1)…the amount of the compensatory award shall be such amount as the tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal in so far as that loss is attributable to action taken by the employer.”
30. The award under s.123 is, accordingly, not only called a compensatory award but is plainly intended to be compensatory in nature. That is, it should not over compensate the claimant. To do so could hardly be said to be just or equitable. Loss is the governing principle and we consider that Mr Healy was correct to focus on loss as being key to an understanding of these statutory provisions. Considerations of justice and equity arise only when determining what, of the loss actually suffered, should be awarded in compensation. Such considerations may, for instance, operate so as to limit the award if the claimant suffers supervening incapacity which would, in any event, have prevented him from working, or a novus actus interveniens occurs or if the claimant himself caused or contributed to his own dismissal (a matter which the tribunal is, in terms of s.123(6) ERA, specifically directed to consider when fixing the award) or to exclude a head of loss which is too remote. That, however, is not to exercise a wide general discretion to allow the claimant to profit at the respondent’s expense; the object of an award under s.123(1) is to compensate, not to award a bonus (as observed by Sir John Donaldson at p.87 in Norton Tool Co Ltd v Tewson  IRLR 86, an observation which was cited with apparent approval by Lord Steyn in Dunnachie v Kingston Upon Hull City Council  IRLR 727, at paragraph 4, in turn relied on by Burton J in Morgans). The task for the tribunal is to compensate in respect of loss, not to award a sum which exceeds the loss actually suffered.
31. Were s.123(1) to be applied so as to allow for compensation to be awarded which exceeded the actual loss suffered, that would conflict with the fundamental principle that the same loss cannot be recovered twice. That principle means that where a claimant/pursuer seeks compensation from more than one respondent/defender, sums already received from one of them must be deducted when assessing what, if anything, is the remaining loss which he is seeking to lay at the door of the others.
Although in this case, the deduction of £20,000 reduced the compensatory award significantly, there should be scope for employees, when negotiating the terms of a compromise agreement, to specify the make up of the agreed figure to reduce the chances of this happening (if that is the intention).
However, it is also worth bearing in mind the decision in Tamang v Act Security Limited which we reported last November in which the employee also entered into a compromise agreement to settle a TUPE related unfair dismissal claim, this time with one of three employers. The Employment Appeal Tribunal found that the agreement did not settle claims against the other two respondents – a lesson to respondents to co-operate to ensure that if an employee agrees to settle a claim, it is effective to protect all of them.