Compromise/waiver agreements in the spotlight

The issue of compromise agreements in the employment context has been in the spotlight recently with 2 cases with differing outcomes. It is well established that a well drafted and properly executed compromise agreement can prevent or limit the possibility of proceedings against an employer.  The cases below reiterate the importance of informed consent and independent legal advice as key to ensuring that any such agreement executed may be upheld.

The case of Eoin Kerrigan v Smurfit Kappa Limited c/o Smurfit Kappa UD1921/2011, demonstrates the pitfalls of the failure to obtain independent legal advice. Here the employee was awarded €10,000 by the Employment Appeals Tribunal (the EAT) notwithstanding the fact that he had already accepted the sum of €25,280 in full and final settlement of all claims arising out of his employment with the respondent company. The substantive issue in the case concerned selection for redundancy. The respondent however raised a preliminary issue concerning jurisdiction to hear the claim as the claimant had already signed a waiver form. The EAT noted that the claimant had not been advised to seek legal advice before signing the waiver and discharge form. This was a key factor in their decision. The EAT relied on the test in the Hurley v Royal Yacht Club [1997] ELR 225 case.  In that case the court considered a waiver clause in the context of the Unfair Dismissals legislation and held that there must be informed consent to such a waiver. There were 2 limbs to the test:

• that the employee should be advised of their entitlements under employment legislation and that any agreement or compromise should have listed the various Acts which were applicable or at least made it clear that the employee should take them into account, and
   
• that the employee should be advised in writing that he should take appropriate advice, which presumably in this case would be legal advice.

The EAT held that, notwithstanding that the unfair dismissals legislation was specified in the waiver clause, it was not sufficient to deny jurisdiction as the second element (the advice aspect) of the Hurley test had not been satisfied.

The second case of Healy v Irish Life Assurance (DEC-E2015-002) demonstrates that where the appropriate steps are followed, a validly executed compromise agreement will be upheld. In this case, the parties had concluded a full and final settlement in respect of "all claims". The complainant had the benefit of legal advice at the time, being represented by his solicitor, senior and junior counsel. He received a sum in consideration of the settlement and, also, a contribution towards his legal costs. The claimant later asserted he was unhappy with the manner of the settlement.  He alleged that what was taking place were exploratory talks. He also described a "ham-fisted" approach and being put under pressure. The Equality Officer, relied on the Sunday World Newspapers Limited v Steven Kinsella and Luke Bradley [2008] ELR 53 case where it was stated that “in the instant case the agreement is expressly stated to be in full and final settlement and that means what it says.. there was meaningful negotiation and discussion.. professional advice of an appropriate character before the agreement was signed.” 

Applying the above rationale the Equality Officer found in this case that "full and final meant just that is "full and final" and that the complainant could “not now ignore the obligations placed upon him by signing this agreement". On foot of this, the Equality Officer found that he had no jurisdiction to hear the case.

Practical tips
These cases demonstrate the importance of informed consent when employees are signing a settlement/compromise agreement terminating their employment relationship. In order to ensure that the consent is "informed", employers should advise employees to seek independent legal advice. This should be referenced in the document, i.e. that the employee has taken or has been given the opportunity to take independent legal advice in relation to the waiver. It may also be appropriate in certain circumstances for the employer to make a contribution towards the cost of this legal advice (on receiving appropriate vouching documentation). This should provide some comfort to the employer that a settlement agreement executed in full and final settlement may be upheld, if an employee subsequently tries to renege on its provisions.

For more information please contact Sinead Grace, sgrace@algoodbody.com or your usual contact in A and L Goodbody Solicitors.

Date Published: 18 March 2015