Compromising situations

Traditionally, the legal market has experienced a high turnover of employees. For the financial year 2004-05, the average turnover rate for assistants in the top 50 firms was approximately 14 per cent according to The Lawyer, with Allen & Overy reporting a turnover rate of 25 per cent. With not all such moves being entirely voluntary, compromise agreements are an area with which most lawyers will be familiar, whether practising in the employment or corporate arenas or otherwise.

Law firms, like any other employer, will be keen to ensure a clean break when an assistant moves on, especially where the relationship has not developed into the ‘beautiful friendship’ envisaged at the recruitment stage. In return, the departing assistant is free to enjoy the benefits of an enhanced termination package, affording them a sangria on the beach while looking forward to pastures new.

However, some recent Court of Appeal decisions have called into question whether an employer can be assured of the clean break it envisaged. Recently, there has been an increasing number of cases involving employees entering into compromise agreements and subsequently seeking to pursue a claim via an employment tribunal.

In the cases of University of East London v Hinton (2005) and Hilton UK Hotels v McNaughton (2005) the Court of Appeal looked closely at the wording of Section 203 of the Employment Rights Act 1996 (ERA), and in particular the need to compromise “particular proceedings”. It is not sufficient that contractually an employee can be said to have compromised their claim, even where the intention to settle all claims is apparent from the general wording of the agreement. Through the intervention of statute, the agreement must also be sufficiently well drafted and tailored to an employee’s particular circumstances to prevent that employee from reneging on their ‘farewell handshake’.

In Hinton, an employee was able to bring a claim under the whistleblowing provisions of the ERA, despite entering into a compromise agreement “in full and final satisfaction of all claims in all jurisdictions (whether arising under statute, common law or otherwise) which the employee has or might have…”. In this instance, the fatal flaw was a failure to specifically list a claim under Section 47B (the relevant whistleblowing provisions) of the ERA, even though the issue had been raised in correspondence prior to the agreement being signed.

In McNaughton, an employee was able to bring a claim under the Equal Pay Act 1970, despite entering into a compromise agreement, as she only discovered the existence of this right subsequently when she read an article in a newspaper. In this case, the employer’s undoing was that the claim under that act was expressed as being limited to claims which the employee “believes he or she has”. This did not preclude the employee from bringing a claim she did not know she had at the time, despite the fact that there was a general waiver of future claims.

However, this does not mean that assistants can trade their sangria for a sporty little number just yet. Most compromise agreements will include a clause requiring the employee to pay back the termination payment in the event that they seek to bring a claim. In addition, as a result of such high-profile cases, employers are becoming increasingly wise to attempts to circumvent the spirit of compromise agreements and are looking to more creative ways of deterring employees from reneging on their handshake – for example, deferring payment of compensation for three months, when the limitation period for bringing most employment claims will have expired. In this way, employers are seeking to ensure that the compromise agreement achieves what they expected it to in the first place.

Paul Callegari is a partner at Kirkpatrick & Lockhart Nicholson Graham. He was assisted by associate Lisa Goodyear