United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	MR THOMAS (Representative)
For the Respondent	RESPONDENT IN PERSON


 


MR JUSTICE MORISON (PRESIDENT): This is an appeal against the unanimous decision of an Industrial Tribunal held at Reading which upheld Mr Porter's complaint that the Respondents, his former employers, had made unlawful deductions from his wages and that he was entitled to £1,831.71 by way of reimbursement under what was the Wages Act, but now The Employment Rights Act 1996.

The Respondents are a small business run by father and son. They manufacture and supply candles to religious organisations and, as such, compete with other companies in the same business such as Price, who are well known candle makers. Mr Porter has had considerable experience in the candle business, having worked for Price for some years..

In circumstances which are in dispute, the parties concluded an employment contract contained in writing and dated 12 June 1995. Paragraph 1 of the contract provided that Mr Porter's employment as a sales representative would commence on 10 July 1995, at a salary of £17,000 per annum plus a company car. Reasonable petrol and car expenses would be reimbursed to him. The contract provided for 1 months' notice of termination on either side.

The employment was not a success. Mr Porter found it difficult to persuade religious outlets to buy his employers' products rather than those they had traditionally used. The employers had thought that, on his recruitment, Mr Porter would bring with him for their benefit a large order, which never materialised. Effectively, Mr Porter was only able to produce some £300 odd worth of orders between the date when his employment commenced and the end of August. By letter dated 29 August 1995, the employers informed Mr Porter that they could not afford to continue with the existing arrangements but that whilst he would be paid for August on the contractual terms, and reimbursed his reasonable expenses, as from September he would become self-employed and would be paid one half the profits of any business which he personally obtained.

By letter dated 1 September, Mr Porter responded by asking whether he was to understand that his employment was being terminated, and enquired what was to become of the car which was still in his possession.

Mr Porter then took legal advice about his position, and by letter dated 6 September said that he had now been advised that his status could not be unilaterally altered as the employers had purported to do in their letter of 29 August; that he was due his salary for August and, as he had effectively been given notice he was entitled to one month's pay in lieu, namely his salary for the month of September, to include any expenses. The letter concluded in this way:

"I am sure you would rather settle this matter without recourse to any Court, however High. I can assure this would be mutually beneficial to both parties."

The parties then met on 16 September. Settlement terms were discussed and a payment of £1315.89 was made to Mr Porter by a cheque drawn on the employers' bank account. That sum was calculated by adding to the outstanding salary payment due for the month of August and the first week of September, less tax and insurance, amounts for Mr Porter's expenses up to 8 September 1995.

Mr Porter and the company signed a letter addressed to Mr Sphikas senior, which reads:

"Please find enclosed weekly expense claims for the weeks ending the 1^st and 8^th September 1995 for the amounts of £28.33 and £47.33 respectively. These are the last expenses to be claimed from Thyateira with the exception of the awaited bill for business calls made on behalf of the company prior to the issue of the BT chargecard. I will submit these immediately the said bill is received."

The parties signed three other documents. The first was an acknowledgement of the receipt by the employers of the company car and the BT chargecard. The second was a receipt from the employee acknowledging the receipt of the cheque. The third was a document which was written by the Company or its lawyers, and signed by both parties, and reads, in one version:

"We Thyateira Church Candle Company (Thyateira) and GCH Porter (Mr Porter) mutually agree that the Employment Contract of GCH Porter be terminated as from 8 September 1995 and Mr Porter agrees to deliver up all property of Thyateira including lists of customers within seven days and that there by [sic] no further liability on either side."

Mr Porter told us that before either party signed the document he had added, after the words "no further liability on either side" the words "without prejudice", and alongside his signature the words "under duress". The employers said that the first they were aware of these additional words was at the Tribunal hearing. Mr Porter said that these words appeared on both copies of the document which were signed on 16 September, and that the document which the employers placed before the Tribunal had been doctored whilst being copied on a photostat machine. However, it is to be noted that in paragraph 5 of the Decision the Industrial Tribunal recited the agreement in its unamended form and held that such document:

"was signed by one of the respondents and by the applicant at a meeting on 16 September 1995 in the car park of the Little Chef, Basingstoke Road, Reading".

Although both parties, who were unrepresented before us, accused each other of bad faith in relation to this and other matters, we must accept the finding made by the Industrial Tribunal as to the terms of the agreement which was signed on that occasion. The words 'without prejudice' would have made a nonsense of the document which had been prepared in advance of the meeting, and we are confident that it would not have been signed by the employers had the additional words been added at the time.

This settlement agreement might have been thought to have put an end to any ongoing disputes between the parties. However, Mr Porter had presented a complaint to an Industrial Tribunal on 8 September, having signed it on 6 September. In that complaint he listed as his dates of employment the period from 10 July to 1 September. It does not appear that the employers were aware that this complaint had been filed, when they met on 16^th September. When we asked about this, as the Industrial tribunal did not refer to the timing of the complaint, Mr Porter initially said that he had not mentioned the existence of these proceedings at the meeting on 16 September, but subsequently suggested that he had done so. There is nothing in the Industrial Tribunal's Decision to suggest that the employers were aware of the presentation of the complaint when the compromise agreement was made. However, this dispute is not of immediate importance to the appeal.

The real issue between the parties was the defence of 'duress' upon which Mr Porter relied at the hearing, so as to escape the effect of the compromise agreement he had signed on 16 September in the car park.

At paragraph 11 of the Decision, the Tribunal noted that it was the employers' case that they were not liable to pay any more money to the applicant by reason of the compromise agreement. They contended that they gave good consideration for the compromise agreement because they were prepared to abandon their contention that Mr Porter had misled them as to the business he could bring to them; in other words a claim for damages for misrepresentation. It would appear that the reason why the Tribunal did not accept this contention was because there was nothing in the contract of employment which made the payment of wages conditional upon the fulfillment of any obligation to produce any particular level of business. It seems to us, with respect, that the claim which the employers were advancing was one which was bona fide made. The fact that, if well made, the claim would at most have given rise to a cross-claim for damages as opposed to a set-off against wages, did not prevent the compromise agreement between the parties having contractual effect. To give up a claim, even a claim of doubtful validity, may provide good consideration for a settlement agreement under which the employee recovers no less that he was entitled to receive under his contract of employment. It also appears that the Industrial Tribunal sought to evaluate the worth of the cross-claim by describing the compromise agreement as being "disadvantageous" [paragraph 14]. It seems to us, with respect, that the Tribunal were not in a position to make such a judgment, because they were not required to, and did not, adjudicate on the issue whether Mr Porter had misled the employers in a way which gave rise to liability.

In the end, the Tribunal were correct to concentrate on the question whether, having regard to the evidence before them, there was a true accord.

The Tribunal reminded itself of the case of D & C Builders Limited v Rees [1966] 2 QB 617 and concluded, in paragraphs 14 and 15 as follows:-

"In the instant case and probably in most cases involving employer and employee where there has been delay in payment by the employer of what is due to the employee with the consequence that the employee has an immediate economic inducement to accept less than his full entitlement it is impossible to say that there has been an accord when the employee is thereby induced to enter into an otherwise disadvantageous agreement.

We unanimously find as a question of fact and law that there was no true accord..."

It seems to us that the Industrial Tribunal erred in law in their approach to the question of duress. The juridical basis of the law of duress is summarised in Chitty on Contracts, General Principles, 27^th edition paragraphs 7-001 to 7-018. As the jurisdiction of the Industrial Tribunals to deal with contractual issues is relatively new it might be helpful if we emphasised certain features of the law on duress.

Duress is a combination of pressure and the absence of practical choice. Not every form of pressure is regarded as illegitimate; indeed there may well be economic pressures which underlie every decision to enter into a contract. During the process of negotiation it is likely that one party will seek to exploit the other's apparent weakness. Duress may be established where the pressure upon which the party alleging unlawful coercion relies is purely economic: Pao On v Lau Yiu Long [1980] AC 614, a decision of the Privy Council. In his judgment, Lord Scarman said:

"It is material to inquire whether the person alleged to have been coerced did or did not protest; whether, at the time he was allegedly coerced into making the contract, he did or did not have an alternative course open to him such as an adequate legal remedy; whether he was independently advised; and whether after entering the contract he took steps to avoid it."

The learned Editors then continue:

"Lord Scarman did, however, draw attention to American case law which stressed the effectiveness of alternative remedies available to the party allegedly coerced; and it seem clear that it would no longer be regarded as an adequate answer to a plea of duress that the party coerced had a legal remedy which he could in due course have pursued in the Courts. The all-important question is whether, having regard to all the circumstances, that remedy is a practical and effective one."

Not every threat to break a contract by one party would be regarded as illegitimate pressure on the other party. The Court of Appeal has said that it is not "on every occasion when one party unwillingly agrees to a variation of a contract that the law would consider that he had acted by reason of duress." Because duress is a combination of pressure and absence of practical choice, all the circumstances must be taken into account. For example, to threaten not to pay money due under a contract because of an alleged misrepresentation giving rise to liability in law, will not ordinarily be regarded as illegitimate, provided it is made in good faith.

The essential features in the D & C Builders Limited v Rees case were that the building owner knew that the builder was in financial difficulties and needed an immediate payment; she did not suggest that she had any defence or cross-claim against the builder. The builder was explicitly told: 'if you do not accept the smaller sum, you will get nothing'. In short, the building owner held the builder to ransom.

Turning to the facts of this case, whilst it is true that on the evidence it would appear that the employers were slow to make payments of salary and of expenses, and that the employee may have considered that he had an immediate inducement to accept no more than was due, and arguably less than was due, the Tribunal failed to analyse what precisely the employers said, as opposed to what the employee feared. It would not be sufficient for the employee to say: 'they had been slow payers in the past; I thought they would pay me nothing if I did not settle.' Duress requires the overt application of illegitimate economic pressure. There is no finding that any such threats were made by the employers. In these circumstances, it does not seem to us that duress was capable of being established. But, in any event, the Tribunal did not apply themselves to the questions to which Lord Scarman had drawn attention. Here, Mr Porter had obtained legal advice; he had threatened to take the employers to Court; he had presented an originating application to the Industrial Tribunal. The availability of a cheap and quick procedure to employees is an important antidote to the inequality of bargaining power inherent in an employment relationship. Mr Porter did not have to sign the agreement on 16 September, he knew what his rights were, as he had taken legal advice. He may well have thought that a bird in the hand was better than two in the bush. What he could not do was to sign the agreement and still go on with his complaint. Had he sought to reserve his position in relation to other claims then, as we have said, it is most improbable that the employers would have been prepared to pay without a fight. Mr Porter's contention that he had indeed added words to the compromise agreement before it was signed is not only improbable but completely at odds with his contention that he was subjected to duress. Further had his evidence been accepted on that point, then the question of duress would not have arisen.

In general terms parties are to be encouraged to settle their differences where that is possible. We are of the view that Mr Porter made a compromise agreement, and thought that he could still pursue his complaint to the Industrial Tribunal about which he had said nothing to the employers at the time. He has tried to eat his cake and have it.

We have considerable sympathy with the Industrial Tribunal which had to grapple with a very difficult case. Neither party was legally represented before them (or, for that matter, before us). Economic duress is not an easy topic and not frequently encountered. The parties each believe that the other is and has been dishonest. With that difficult background, we would not wish to be thought to be critical in any way of their Decision, despite our judgment that they misdirected themselves in law. They lacked the help which was necessary in a case such as this.

In our judgment the appeal must be allowed, and Mr Porter's complaint dismissed.