As a general rule, out of court settlements of employment disputes are not legally binding in that they cannot exclude an employee’s right to take the matter concerned to an Employment Tribunal (ET). A formal compromise agreement is one of the few exceptions to this rule.
A compromise agreement is an agreement by which an employee undertakes to refrain from instigating ET proceedings against his or her employer or, if proceedings have already commenced, to discontinue them in return for consideration. Compromise agreements were created by Section 203 of the Employment Rights Act 1996 (ERA) and must comply with the stringent requirements contained therein.
In the recent case of Industrious Ltd. v (1) Horizon Recruitment Ltd. (2) Vincent, the Employment Appeal Tribunal (EAT) examined whether the ET has jurisdiction to determine whether or not a compromise agreement is enforceable when there is a claim of misrepresentation, notwithstanding that the agreement complies with the Section 203 requirements.
Jane Vincent was the Managing Director of Horizon Recruitment Ltd. She claimed that in early 2009 there was a relevant transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 between Horizon and Industrious Ltd. She agreed to resign in return for a monetary settlement, but both the transferor and the transferee reneged on the deal. She therefore commenced ET proceedings, but her claims were settled by way of a compromise agreement that it was agreed met with the requirements as specified in Section 203(3) of the ERA.
In July 2009, Horizon entered creditors’ voluntary liquidation and the promised payments were not made to Mrs Vincent. She applied to the ET to have the compromise agreement set aside on the grounds that the other parties to it must have known at the time that it was made that they would not be able to honour its terms. She contended that she had relied upon misrepresentations on their part when entering into the compromise agreement. This claim was strongly denied.
The ET concluded that it did have jurisdiction to consider a challenge to the validity of the compromise agreement on the basis of the alleged misrepresentation. Industrious Ltd. appealed, contending that the Employment Judge had erred as the ET’s only task was to determine whether an agreement complied with the strict requirements of Section 203(3) of the ERA. Any other issues relating to the enforceability of the agreement had to be determined in the County Court.
The EAT examined the relevant authorities and dismissed the appeal. In the EAT’s view, the word ‘agreement’ in Section 203 must mean a valid agreement and the ET has to ensure that any purported compromise agreement is valid. There is nothing in the ERA which precludes the ET from performing this task, which is no more complex than many other issues under its jurisdiction.
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