APPEARANCES
| For the Appellant |
MR EDWARD LEGARD
(Of Counsel)
Instructed by:
Gordons LLP
Riverside West
Whitehall Road
LEEDS
West Yorkshire
LS1 4AW |
The First Respondents were not represented
For the Second Respondent |
MRS J VINCENT
(In Person) |
SUMMARY
PRACTICE & PROCEDURE
Compromise
Section 203(1) of the Employment Rights Act 1996 ("ERA") deems as void provisions, which preclude a party from bringing proceedings before an Employment Tribunal, save in respect of agreements which satisfy certain specific requirements, which are set out in section 203(3) of ERA. Does that Employment Tribunal have jurisdiction to determine whether a compromise agreement is unenforceable because of misrepresentation?
The Employment Tribunal held that it did.
Held on appeal
The Employment Tribunal does have jurisdiction to determine if a compromise is unenforceable.
Eden v Humphries & Glasgow [1981] ICR 183; Larkfield of Chepstow Limited v Milne and another [1988] ICR 1 and Byrnell v British Telecommunication PLC (UKEAT/0383/04) not followed.
Henessey v Craigmyle & Company Ltd [1985] ICR 879 and Greenfield v Robinson (E.A.T/811/95) applied.
THE HONOURABLE MR JUSTICE SILBER
Introduction
- Section 203(1) of the Employment Rights Act 1996 ("ERA") deems as void provisions, which preclude a party from bringing proceedings before an Employment Tribunal, save in respect of agreements which satisfy certain specific requirements, which are set out in section 203(3) of ERA. In the present case, it is common ground that the parties entered into a compromise agreement which met those requirements but the Claimant employee contends that the compromise agreement is not enforceable because of misrepresentations made by the employers. The issue before the Employment Tribunal and before this Appeal Tribunal was whether the Employment Tribunal had jurisdiction to determine whether the alleged compromise agreement was unenforceable on grounds of misrepresentation notwithstanding that the compromise agreement complied with the section 203(3) requirements.
- On 17 August 2009, Employment Judge Lee sitting in Leeds held that the Employment Tribunal had jurisdiction to determine this issue but the employers have appealed. The President of this Appeal Tribunal ordered the full hearing in order that this issue should be resolved in the light of conflicting authorities to which I will refer shortly.
The Facts
- Mrs Jane Vincent ("the Claimant") was appointed as Managing Director of the Horizon Recruitment Limited ("the Respondent") from January 2006 until her resignation on 31 December 2008. The Claimant contends that there was a TUPE transfer between the Respondent and Industrious Limited ("Industrious") in early 2009. The case for the Claimant is that in November 2008, she agreed to resign in return for a monetary settlement but both the Respondent and Industrious reneged on this binding agreement. It is not suggested that any agreement made at that time complied with the requirements of section 203(3) of the Act.
- On 23 March 2009, the Claimant lodged her application Form ET1 in the Employment Tribunal. On 17 June 2009, three separate agreements were made which were:-
(a) A Deed of Compromise ("the compromise agreement") under which (i) the Respondent would pay the Claimant £30,000 by way of termination payment and £13,750 a covenant payment within 7 days of the agreement (clauses 3 and 8) in full and final satisfaction of all claims by the Claimant against the Respondent and Industrious and (ii) the Claimant agreed upon execution of the agreement to immediately and unconditionally withdraw the proceedings before the Employment Tribunal;
(b) A Deed of Settlement between the Claimant, the Respondent, Industrious and certain directors; and
(c) A Sale Agreement made between the Claimant and various directors.
- On 22 July 2009, the Respondent entered creditors' voluntarily liquidation. It is common ground that neither of the payments provided for by the compromise agreement was paid. The case for the Claimant is that when the compromise agreement was entered into either the Respondent or Industrious or both of them must have known they were not going to be able to comply with the payment provisions in the compromise agreement. She contends that she was misled into entering the agreement as a result of misrepresentations on the part of one or both the Respondent and Industrious. The Claimant wishes to set aside the compromise agreement.
- The issue before the Employment Tribunal was whether it had jurisdiction to consider a challenge to the validity of the compromise agreement on the basis of the misrepresentations or whether the Claimant had to bring separate proceedings in the courts to set aside the compromise agreement.
The Statutory Provisions
- Section 203(1) of ERA, insofar as is material, provides that:-
"(1) Any provision in an agreement… is void insofar as it purports:-
(b) To preclude a person from bringing any proceedings under this Act before an [Employment Tribunal]…
(2) Subsection (1) does not apply to any agreement to refrain from instituting or continuing any proceedings… if the conditions regulating compromise agreements under this Act are satisfied in relation to the agreement."
- The conditions specified in sub-section (2) which had to be satisfied are set out in s.203 (3) of ERA 1996 and as it is not disputed that they have been satisfied, the conditions can be summarised as broadly requiring that the agreement be in writing; that it relates to particular proceedings; that the employee has received advice from a relevant (and insured) independent advisor and that it carries a statement to that effect.
- The case for Industrious is that the Employment Tribunal does not have jurisdiction to deal with any aspect of a compromise agreement which satisfies the requirements of section 203(3) of ERA. Reliance is placed on provisions cases which show issues of enforcing a compromise agreement have to be dealt with by the courts and not by the Employment Tribunal. Thus Section 19A (3) of the Employment Tribunals Act 1996 provides that:
"(3) Any sum payable by a person under the terms of the compromise (a "compromise sum") shall, subject to subsections (4) to (7), be recoverable –
in England and Wales, by execution issued from a county court or otherwise as if the sum were payable under an order of that court;"
The Reasoning of the Employment Judge
- The Employment Judge found that:-
(a) The compromise agreement was valid in that it met all the requirements of section 203(3);
(b) Although Industrious was not named as a party to the compromise agreement, the agreement if valid bound the Claimant in respect of her claims against both the Respondent and Industrious; and that
(c) The Claimant had an arguable case that in entering the compromise agreement she had been induced by and or relied on a material misrepresentation on the part of the Respondent.
- None of those findings are in dispute on this appeal but what is challenged on the appeal is the finding of the Employment Judge that "this Tribunal does have jurisdiction to determine whether there is an enforceable agreement" (paragraph 10 of the Determination).
The Submissions
- Mr Edward Legard counsel for Industrious (who has complied admirably with his duties to the court with an unrepresented opponent by referring me to all relevant cases even though they do not support his submissions) contends that the Employment Judge erred because the only task of the Employment Tribunal was to determine if the strict requirements of section 203(3) had been complied with and that any other issues relating to the enforceability of a compromise agreement had to be determined in the County Court. He proceeds to contend that the Employment Tribunal is a creature of statute and that there is no provision which enables it to decide whether a compromise agreement is enforceable or impugnable on grounds of duress or of misrepresentation. In support of this contention he relies on authorities to which I now turn.
- In Eden v Humphries & Glasgow Ltd [1981] ICR 183, which was the first case in which the validity of a compromise agreement was considered, Slynn J said at pages 185 -186:-
"Now, as we understand the position in the High Court, from looking at The Supreme Court Practice (1979), vol.2, paras. 2015 and 2016 under the heading "Compromise," if an action is compromised then the compromise can only be set aside by a separate action and on certain limited grounds. The question is whether the appeal tribunal has jurisdiction to set aside an agreement which has been made, even if application is made on the grounds which would justify the matter being set aside in the High Court. We have to remember that we are a body set up by statue with only the powers which the statute gives us. It does not seem to us that those powers do include jurisdiction to set aside an agreement which has been arrived at between the parties to compromise an appeal to this tribunal. Nor can the provisions of the notes which the employee relies on, to the effect that we can regulate our own procedure, possibly give us the jurisdiction which he suggests that those notes do give us."
- There are two major differences between the situation in the Eden case and the present case. First in the Eden case, unlike in the present case, the compromise related to an appeal to this Appeal Tribunal rather than to the Employment Tribunal. Second, the present case has to be considered in the light of section 203 and there was nothing similar in force at the time of Eden. So I do not consider that it helps me.
- The next relevant case is the decision initially of the Employment Appeal Tribunal in Henessey v Craigmyle & Company Ltd [1985] ICR 879 in which Popplewell J giving the judgment of this Employment Tribunal had to consider whether an Employment Tribunal could determine whether a compromise agreement produced by a conciliation officer could be set aside by the Employment Tribunal on grounds of economic duress. He explained (with my emphasis added) at page 885that:-
"It was argued by the employers that because of the provisions of section 140(2) which specifically lay down the matters which can be relied on as validating a contract the doctoring of economic duress have no application to the Employment Protection (Consolidation) Act 1978. It seems to us, however, that the word "agreement" in section 140(1) is subject to all the qualification by which an agreement can be voided at common law. It was never intended that the provisions of sub-section (2) should be exclusive. Accordingly we reject the submission that if economic duress is capable of rendering a contract voidable it has no application to employment law. But we believe the circumstances in which it is likely to be successfully alleged will arise in employment law only in the most exceptional circumstances".
- No doubt was cast on this statement when the case went to the Court of Appeal [1986] ICR 461. It is noteworthy that in giving his judgment the Master of the Rolls (Sir John Donaldson) with whom the other two members of the court (Parker and Wolfe LJJ) agreed explained that they recognised that contracting-out provisions under section 140(2) can be avoided on the grounds on which an agreement can be avoided at common law and economic duress was an example of this. The Master of the Rolls accepted that the Tribunal had jurisdiction to consider if an agreement can be avoided when he said at page 468-469 that:-
"Whether economic duress of this order did or did not exist is entirely a question of fact for the tribunal of fact, in this case the Industrial Tribunal".
- In my view, this dicta is powerful support for the approach of the Employment Judge which was that an Employment Tribunal is entitled to consider whether a compromise agreement can be and should be avoided before deciding if it constituted a valid agreement for the purposes of section 203 of the ERA.
- Then in Larkfield of Chepstow Ltd v Milne and Another [1988] ICR 1, there was an attempt to have an agreement avoided on the ground that it was concluded under a mistake of fact. The parties had reached an agreement at the end of the hearing and the settlement was approved with the original application being stayed. An issue arose as to whether the settlement had been made under a mistake of fact because unknown to the parties when the members of the Employment Tribunal had retired, they had found in favour of the Claimant. The Claimant applied successfully to the Employment Tribunal for the lifting of the stay and the Respondent appealed successfully as it was decided that there were no grounds for avoiding the agreement.
- Having quoted the passage from the Eden case to which I have just referred, Garland J giving the judgment of this Appeal Tribunal said at page 7 that:-
"we referred to Hennessy v Craigmouth and Co Ltd [1986] ICR 461 as authority for the proposition that a compromise complying with section 140 can be set aside in exceptional circumstances, but we would hesitate to regard this decision as authority for the proposition that there was jurisdiction to set aside at common law or in equity rather than on the ground that the conciliation officer has not conducted himself and the negotiations strictly in accordance with the relevant provisions of the Act of 1978".
- There are two reasons why I do not consider that judgment helpful. First, the Appeal Tribunal in Larkfield (supra) was not referred to the judgment of Popplewell J in Hennessy (supra) but instead only to the decision of the Court of Appeal in that case which did not deal specifically with the point which has to be resolved on this appeal. Second, Garland J (unlike me) was dealing with a submission from the employer appellant that "the appeal tribunal cannot review or revise a settlement properly entered into" while I am considering a submission that the Employment Tribunal cannot impugn a compromise agreement.
- The next decision is that of this Appeal Tribunal in Greenfield v Robinson given on 16 May 1996 (EAT/811/95) in which the main point on the appeal was whether and in what circumstances an agreement evidenced by a signed COT3 agreement, is liable to be set aside on grounds of alleged misrepresentation. The Employment Tribunal had to consider the question of jurisdiction but they made findings of fact which led them to conclude that it was unnecessary for them to rule on the question of jurisdiction. Mummery P explained (with my emphasis added) that:
"That was a sensible, practical way of dealing with the matter. If there is any doubt about the jurisdiction of a Tribunal to entertain this kind of application, we would remove that doubt now. The position, in our view, is that the conclusion reached in Vol. IV of Harvey on Industrial Relations and Employment Law, paragraph 713 to 735, is correct. On the basis of the ruling by Mr Justice Popplewell in the case of Hennessy v Craig Myle & Co Ltd [1985] ICR 879 at 885 B-E, a tribunal can investigate the circumstances in which it is alleged that an agreement, within the meaning of s.140 of the Employment Protection (Consolidation) Act 1978, is liable to be avoided at common law or in equity. No doubt was cast on this statement when that same case went to the Court of Appeal: [1986] ICR 461. It is clear from the judgment of the Master of the Rolls, (Sir John Donaldson) with which the other two Members of the Court agreed, that they recognized that contracting–out agreements under s.140(2) can be avoided on grounds on which an agreement can be avoided at common law. See page 465 B-C. That particular case dealt with economic duress as a ground of avoidance. There is no reason why actionable misrepresentation at common law cannot also form the basis on which an Industrial Tribunal could set aside a contract falling within that section.
Ms Williams cited other cases qualifying or casting doubt on this jurisdiction of the Industrial Tribunal. In our view, the two main cases are distinguishable. We agree with the editor of Harvey that neither Eden v Humphries and Glasgow Ltd [1981] ICR 183 nor Larkfield of Chepstow Ltd v Milne [1988] ICR 1 at 6G – 7F affect the correctness of the judgment of Mr Justice Popplewell in the Hennessy case. Neither case is authority for the proposition that an Industrial Tribunal (as opposed to the Employment Appeal Tribunal) has no jurisdiction to set aside an agreement disposing of proceedings over which it alone has jurisdiction.
In so far as the decisions are inconsistent with the proposition of Hennessy, we agree with the editors of Harvey that Hennessy is the more compelling authority.
On this appeal Mr Quinn did not seek to challenge the correctness of Ms Williams' propositions on jurisdiction".
- I agree with Mr Legard that the submission on jurisdiction was not contested but the views of Mummery J on matters of this sort have particular weight especially as they followed the same views expressed in Hennessy (supra).
- Unfortunately the statements of Mummery P and Popplewell J were not referred to in the more recent case of Byrnell v British Telecommunications PLC (UKEAT/0383/04) in which His Honour Judge Ansell in the judgment accepted a submission that the only jurisdiction of the Employment Tribunal in relation to the validity of compromise agreement was to ascertain whether it complied with relevant sections such as section 203 of the Employment Rights Act 1996 which as I have explained sets out a series of requirements.
- Judge Ansell said of the Employment Tribunal:-
"9.. they clearly had no jurisdiction to enter claims in relation to the termination agreement as a whole; their task was merely to satisfy themselves that the relevant provisions of the agreement that dealt with the compromise of employment claims satisfied the various statutory requirements in terms of form and legal advice".
- I feel sure that if Judge Ansell had been referred to the approach advocated in Hennessy and in Greenfield, he would have followed them.
Conclusions
- My view of the authorities is that I should follow the approach advocated in Hennessy and in Greenfield which deal directly with the point raised on this appeal and I am encouraged that Harvey in Industrial Relations and Employment Law reaches a similar conclusion (Paragraph T 713). For the reasons which I have sought to explain, the cases which take a different approach can be distinguished.
- Indeed if I had not been bound by authority, my conclusion would have been the same. In my view, section 203(2) of the ERA permits the parties to make valid compromise agreements but the word "agreement" must mean a valid agreement and the Employment Tribunal has to ensure that any purported compromise agreement is valid. There is nothing in the ERA which precludes the Employment Tribunal from performing that task and the only reason of principle suggested by Mr. Legard for taking a different view is that such a task might be too complex for an Employment Tribunal. Compared with the tasks facing Employment Tribunals in, for example, discrimination cases, it is not demanding or onerous to decide if an agreement can be set aside for misrepresentation. Indeed the Employment Tribunals frequently have to resolve difficult and complex issues of contractual law such as when they are determining whether an employee has been unfairly dismissed.
- For those reasons, this appeal must be dismissed.
