Compromise agreements

A fairly standard indemnity in a compromise agreement did not oblige an employer to pay an ex-employee’s legal expenses associated with a criminal investigation into action allegedly taken by him when he was an employee.

The EAT in Scotland has held that compromise agreements entered into by Glasgow City Council to settle equal pay claims prevented the women affected from pursuing those claims, even though their solicitors had not advised whether or not the settlements on offer were a ‘good deal’. There is no obligation on advisers to comment on the potential value of a claim or assess the likelihood of its success – all that is required is that the employee is advised what the terms of the compromise agreement are and what they mean.

The Court of Appeal has overturned a High Court decision that a £250,000 compromise agreement between an NHS Trust and its former Chief Executive was unreasonably generous. The CEO’s good service and likely difficulties in finding future employment were relevant considerations and the High Court had been wrong to disregard them. The Court of Appeal also made some pretty scathing comments about the way that the case had been handled.

The Court of Appeal held that for a specific type of claim to be covered by a compromise agreement, it must be particularly specified - a general ‘catch-all’ provision is not enough. Clause 9 of H’s compromise agreement stipulated that all outstanding claims arising out of the employment and/or its termination were intended to be settled and went on to list 11 particular kinds of claim, but expressly exempted certain other kinds of claim such as pensions and personal injury.

This Court of Appeal case casts some doubt on the enforceability of 'repayment clauses' commonly contained in compromise agreements. Z signed an agreement settling his claim against CMC for about £21,000. It contained a clause stating that the full amount would be 'immediately repayable' if Z broke any of the terms in the agreement.

P signed a compromise agreement shortly before taking voluntary redundancy from BT which stated that it settled ‘all claims past or future arising out of termination of her employment’. Perhaps unsurprisingly the EAT held that this wording did not compromise claims which arose before her termination and she was therefore free to bring claims in respect of those.