The validity of compromise agreements

“Do I have to get legal advice on this Agreement? Can’t I just sign it and get my money? I promise I won’t bring a claim now”.

As you will be aware, for a Compromise Agreement to be binding, the employee must take independent legal advice and the adviser’s personal details must be set out in the agreement – without this, the employee will still be able to bring claims against their employer. But what else might invalidate a Compromise Agreement?

A valid Compromise Agreement must comply with certain specific requirements set out in the Employment Rights Act 1996 and other legislation under which claims could be brought. If you wish to ensure validity, this includes the agreement being in writing, referring to the specific complaints which are to be compromised and stating that the statutory conditions regulating Compromise Agreements have been satisfied for the relevant legislation.

In addition, recent case law has confirmed that misrepresentations by either the employer or the employee to the other may result in the Compromise Agreement being unenforceable.

When Ian Dowie misled Crystal Palace Football Club into entering into a Compromise Agreement with him, he was then unable to argue that he should be released from the requirement that he pay the Club £1m for leaving the Club before the end of his fixed-term contract and gaining new employment with another football club. He had told Crystal Palace that he wanted to leave the club as he wanted to move back to the North of England for family reasons. He then joined Charlton Athletic Football Club immediately after and the High Court found that he had knowingly made false statements to Crystal Palace which induced them to waive the requirement that he pay them £1m. The High Court decided that it was appropriate for Mr Dowie to pay damages of an amount to be decided.

In another case, Mrs Vincent settled her claims against one company (Horizon Recruitment Ltd) by whom she had been employed as Managing Director and another company (Industrious Ltd) to which she was arguing the first company’s business had transferred. The terms of the settlement were that Horizon would pay her monies and she would withdraw her claims in the Employment Tribunal. However, Horizon went into creditors’ voluntary liquidation only 35 days after the Compromise Agreement was signed. Mrs Vincent then persuaded the Tribunal that she had been induced by Horizon to sign the Agreement when it knew that it could not pay the settlement monies. The Employment Appeal Tribunal agreed that the agreement was invalid due to Horizon’s misrepresentation and allowed Mrs Vincent to continue with her claims.

It is therefore very important that employees and employers do not mislead the other when entering into a Compromise Agreement. For example, if an employer were to tell an employee that their role was redundant and then replace that employee shortly after a Compromise Agreement had been signed, the employee may well argue that the agreement is unenforceable and they should be allowed to bring an unfair dismissal claim against the employer.

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