Employment Alert No. 112: Compromise Agreements - No. 2
November 17, 2005
| What is the Issue? |
The EAT (sitting in Scotland) has ruled that a compromise agreement expressly waiving claims under the Equal Pay Act 1970 did not prevent the ex-employee from subsequently bringing a claim under the Act. The employee was able to bring her claim because, at the time she signed the compromise agreement, she did not know she had a part-time pension claim under the Equal Pay Act 1970 (Hilton UK Hotels Ltd v McNaughton EATS/0059/04).
This case follows the Court of Appeal’s decision that compromise agreements must clearly identify particular claims in Hinton v University of East London (see Employment Alert No.99, May 10, 2005).
| What has been decided? |
The EAT:
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Confirmed the current position that a blanket agreement simply asking the employee to sign away all their rights is not effective. The claim(s) being given up by the employee must be identified by either a generic description or a reference to the relevant section of the statute;
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Confirmed that future unknown claims can be compromised, but to do so the terms of the agreement must be absolutely plain and unequivocal; and
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Held that, in this case, the wording of the agreement meant that the Equal Pay Act claim had not been effectively compromised because the employee did not believe that she had such a claim when she signed the agreement.
The case turned on the wording which was used in the compromise agreement. The agreement provided that the employee accepted the terms “in full and final settlement of any and all present and future claims…against the Company… or any other matter including any common law or statutory claims whatsoever …such as … any and all of the Statutory Claims.”
“Statutory Claims” was defined as “the claims that you believe you have against the Company… for breaches of… the Equal Pay Act 1970 …”.
The EAT held that the general reference to future claims was not specific enough and that the specific reference to the Equal Pay Act applied only to claims that the employee believed she had.
At the time of signing the compromise agreement, the employee did not believe that she had any claims under the Equal Pay Act. It was only later, when reading a news article, that it occurred to her that she may have a part-time pension claim under that Act.
| What does this mean for employers? |
Although this type of scenario is unlikely to occur often (claims under the Equal Pay Act are the only types of claims which are able to be brought within 6 months of employment ending, as opposed to the more usual 3 month limit from the date of the action arising), this case highlights the need for employers to think carefully about what their compromise agreements say. What is the employee actually compromising?
Ideally, all claims that an employee may reasonably have (both present and future) should be listed clearly and comprehensively in the compromise agreement (either by referring to the relevant statute or to a generic description) and then compromised.
Any waiver of future claims should be absolutely plain and unequivocal – for example making it clear that the employee is waiving specified claims they may have in the future, even though they may not currently have knowledge of them. A general waiver of future claims will not be sufficient.
