A Compromise Agreement is frequently used to settle claims or potential claims by an employee against their employer. (see Services tab and dropdown list item Compromise Agreements). Provided that certain formalities are observed a Compromise Agreement provides the employer with a defence against claims of the sort that the agreement is designed to halt.
However, in a recent case the EAT has, not very surprisingly, stated that if the employee has been induced to sign the agreement because of a material misrepresentation before the agreement then it can be overturned by an employment Tribunal as not being valid. This leaves the employee free to pursue the very claims that the agreement was intended to prevent.
This was decided in Industrious Ltd v Horizon Recruitment Ltd (in liquidation) and Vincent. The facts are complex but it is the principle that is important. In short, Mrs Vincent had resigned from H Ltd and after starting a Tribunal case against her employer, the claim was settled by an apparently valid Compromise Agreement. After that, on 22 July 2009 HR Ltd went bust. Mrs Vincent wanted to set aside the compromise agreement on the basis that either I Ltd (who had taken over H Ltd’s business) or H Ltd, or both of them, must have known that they were not going to be able to comply with its payment provisions and had misled her into entering the agreement.
She applied to the Tribunal for this purpose and as a preliminary issue it was decided that if there was a misrepresentation then the Tribunal could hear her original claim which had ostensibly been settled by the Compromise Agreement. The matter was appealed to the EAT who agreed that as a matter of principle if there had been misrepresentation then the Compromise Agreement could be, in effect, set aside to allow Mrs Vincent’s claim to proceed.
This is important to keep in mind as employers may, for example, sometimes misrepresent that there is a redundancy situation which is not real or is only a limited version of the truth. The employee believes the employer, signs a compromise agreement but then later finds out the truth and may in such circumstances be able to make a claim for much more than the agreement provided for.
