United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	Ms C McManus, Solicitor Of- Messrs Harper Macleod Solicitors The Ca'd'oro 45 Gordon Street GLASGOW G1 3PE
For the 1st & 2nd Respondents	Mr B Napier, Advocate Instructed by- Messrs Wragge & Co Solicitors 55 Colmore Road BIRMINGHAM B3 2AZ


 


MR JUSTICE LINDSAY (PRESIDENT):

We have before us the appeal of Mr John Sutherland in the matter Sutherland v. two respondents, Network Appliance Ltd and Network Appliance Inc. Ms McManus appears for the appellant and Mr Napier for both respondents. Although Ms McManus has a secondary and alternative argument, the appeal chiefly raises this question: where, in existing proceedings for both statutory and contractual claims, there is a compromise not complying with section 203 of the Employment Rights Act 1996 but nonetheless expressed as being in full and final settlement of any claim the appellant may have, (without there having been any reference to severability and without, also, the compromise being in any conveniently severable form), does section 203 make void the whole compromise or does it avoid only so much of the overall compromise as would offend section 203?

1. On 12 March 1999 Mr Sutherland lodged his IT1 for unfair dismissal, sex discrimination, damages for breach of contract, unlawful deduction from pay and payment of sums due. He alleged employment only from 21 April 1998 to 15 December 1998. The two respondents that we have mentioned were joined, Network Appliance Ltd and Network Appliance Inc, the latter corporation being a Californian corporation. On 6 April both respondents lodged ET3s. Arrangements were made for a preliminary determination as to whether the Tribunal had jurisdiction to deal with the claim for damages and breach of contract in the light of the alleged compromise agreement which we will later describe. On 21 July 1999 the Employment Tribunal at Glasgow under the Chairmanship of Mr R. A. MacKenzie heard the case. On 15 November 1999 the decision was sent to the parties. The unanimous decision was as follows:-

"…the Tribunal has no jurisdiction to consider the applicant's claim for damages for breach of contract."

2. On 3 December of last year Mr Sutherland lodged his Notice of Appeal. On 23 December both respondents answered, relying only upon the grounds which the Tribunal itself had relied.
3. The Extended Reasons first described the nature of Mr Sutherland's contractual claims. They were:-

"The applicant's claim for damages for breach of contract comprised the loss arising from (a) the first respondents' failure to give reasonable notice of termination of employment which the applicant claimed should be six months; (b) the potential loss arising from the fact that the applicant was unable to exercise an option to purchase shares in the second respondent; and (c) expenses due in connection with his employment with the first respondents."

4. The Tribunal held that such contractual claims were all claims made under section 3 of the Employment Tribunal Act 1996. Section 3 of that Act provides:-

"3 Power to confer further jurisdiction on [Employment Tribunals]

(1) The appropriate Minister may by order provide that proceedings in respect of-

(a) any claim to which this section applies, or

(b) any claim to which this section applies and which is of a description specified in the order,

may, subject to such exceptions (if any) as may be so specified, be brought before an [employment tribunal].

(2) Subject to subsection (3), this section applies to –

(a) a claim for damages for breach of a contract of employment or other contract connected with employment,

(b) a claim for a sum due under such a contract, and

(c) a claim for the recovery of a sum in pursuance of any enactment relating to the terms or performance of such a contract,

if the claim is such that a court in England and Wales or Scotland would under the law for the time being in force have jurisdiction to hear and determine an action in respect of the claim."

Subsection (3), as to claims for personal injuries, is not here material.

5. We do not understand the appellant to argue that the claims in issue were not claims under section 3 of the Employment Tribunals Act 1996.
6. The Respondents' case was and is that such claims had been compromised by an agreement of 4 December 1998. It was an agreement made on the writing paper of the first respondent, was addressed to the appellant and is signed by the managing director of the first respondent and also by Mr Sutherland. It reads as follows:-

"Dear John

This confirms our meeting today.

Your employment with the Company will terminate with effect from Tuesday 15th December 1998.

On or after that date the Company will pay you £3,500 free of tax by way of compensation for loss of employment.

The Company may increase that amount to £10,000 if in its opinion you satisfactorily hand over all your responsibilities and Company property prior to 15th December 1998.

These[s] sums are in full and final settlement of any claims you may have against the Company arising out of your employment or its termination.

Please sign and return the attached copy of this letter to show you agree with its terms."

7. As to that letter (marked "R4"), the Appellants' principal argument is economically set out in the Notice of Appeal;-

"The Purpose of the Respondent's production R4 was to preclude the Applicant from bringing any claim arising out of the Applicant's contract of employment with them. This included statutory claims and accordingly Section 203 of the Employment Rights Act is applicable to production R4.

Production R4 does not satisfy the terms of Section 203 and therefore the contract stated in production R4 is void.

The Applicant had statutory and contractual claims arising out of the contract of employment. The Applicant's breach of contract claim cannot be severed from his statutory claims. A claim can only be severed if the agreement is framed in a severable way. The breach of contract and statutory claims are not severable in the Respondent's production R4. Production R4 refers to "any claims". This is a generalist provision, apt to cover all claims and is not severable.

The Tribunal cannot re-write the contract so as to construe it in a severable way."

8. At this point we must refer to section 203. It provides as follows:-

"203. Restrictions on contracting out

(1) Any provision in an agreement (whether a contract of employment or not) is void in so far as it purports-

(a) to exclude or limit the operation of any provision of this Act, or

(b) to preclude a person from bringing any proceedings under this Act before an [employment tribunal]."

Subsection 2(f) disapplies subsection (1) where there has been a compromise of certain types of claim under the Employment Rights Act which is a compromise satisfying the stringent requirements of subsection (3). However, the contractual claims with which we are dealing are not within the appropriate description of claims to which section 203(2)(f) relates because such contractual claims are not under the Employment Rights Act but, as we have mentioned, under the Employment Tribunals Act 1996 section 3. Moreover, it is common ground between the Appellant and the Respondents that the form of compromise in the case before us did not comply with subsection (3). Accordingly, section 203(1) is not here disapplied by section 203(2).

9. We therefore need to consider its effect. It is not that any agreement which includes a requirement in contravention of section 203(1) is totally void; at most it is only the provision within the agreement which is to be void. Further, it is not even that the whole of any separate identifiable provision which includes a requirement in contravention of section 203 is made void but only that provision "in so far as it purports" so to exclude or preclude in contravention of section 203. It is not void "if" it so purports but only "in so far as it so purports" that it is to be void.

Nothing could have been easier for the legislature to say than that if an agreement contained any offending provision then the whole agreement would be void or, alternatively, that if a provision of an agreement contained any offending requirement then the whole provision would be void. But that was not done. Once one sees that there is not a general avoidance but only an avoidance "in so far as", it seems to us that Parliament was contemplating that agreements were intended to be capable of surviving in part even though struck out as to part. As Mr Napier points out, the Appellant's argument which we have cited above - namely that "Production R4 does not satisfy the terms of section 203 and therefore the contract stated in Production R4 is void" - is not justified by the Statute. Avoidance is only "in so far as" rather than total.

10. Returning to the letter of purported compromise, there is nothing express in it which offends section 203(1) but the words "in full and final settlement of any claims you may have against the Company arising out of your employment or its termination" must impliedly include that Mr Sutherland is not to be able, after accepting the compromise, to assert any statutory claims arising out of his employment or its termination. Such an implied term offends section 203(1)(b) so far as it relates to statutory claims. That provision is thus at least pro tanto void. But there is, in our view, no reason on that account, where Parliament has contemplated part survival, part avoidance, to sweep aside the whole contract. To do so would be to ignore "in so far as" and to read it as if it said simply "if". Indeed, Ms McManus accepts that her argument extends the Act beyond its terms in this respect; her argument would lead to the avoidance of provisions not merely "in so far as" they purport to exclude or preclude as is provided in paragraphs (a) and (b) of subsection 1 but also, where such contravening provisions could not be severed from other provisions, her argument would also avoid those other provisions although the legislation has nowhere so provided. Her argument also introduces legal technicality in an area where businessmen, employers and employees, should be able to manage without it. Thus she accepts (on this first part of her argument) that if only the agreement had said that it had been in settlement of any claims "whether of a contractual or statutory nature" then the compromise of contractual claims would have been clearly severable and the compromise of them would have been effective.
11. This question of severability is at the heart of Ms McManus' argument. She relies on Living Design (Home Improvements) Ltd v Davidson [1994] IRLR 69, a case in which the Court of Session refused to grant the interdict there sought, which was in restraint of trade. We, however, are not dealing with agreements of a kind prima facie to be regarded as unreasonable, nor was Living Design (Home Improvements) Ltd dealing with a case, such as ours, where what is in play is the effect of a statute providing for qualified rather than total avoidance. In the circumstances we are not assisted by the case. Ms McManus also drew to our attention Lunt v Merseyside TEC Ltd [1999] ICR 17 EAT. However, at page 26 of the report the case makes the point that the provisions of section 203 of the 1996 Act do not apply to claims for breach of contract and, moreover, that the words "in so far as" work a severance. We do not see the case as assisting the Appellant.
12. Parliament could very easily, when framing section 203, have given employees making contractual claims relating to employment the same protection in relation to their compromise – ensuring that they derived from fully informed consents arrived at upon appropriate professional advice - which it conferred upon employees making claims under the Employment Rights Act. If that had been decided upon as a course for the legislature to take then, in order for it to be effective and logical, it would have been necessary for the legislature to have extended the statutory provisions not only to cover contractual claims and their enforcement in the Tribunals but their enforcement in the ordinary civil courts. However, there are no such provisions in either field. We can only assume that Parliament has not regarded the compromise of contractual claims without the full degree of protection that one finds in section 203(3) as a mischief worth attending to.

In that legislative context, we do not see it, in any pejorative sense, as re-writing the agreement to allow it to take effect as to the contractual claims whilst denying it effect as to the statutory ones. Section 203(1) is concerned with the effect and enforceability of agreed provisions not their language or form. The Court picks up the agreement after the statutory scissors of section 203 have cut out the parts to which effect is not to be given and enforces the remnant. To oblige the scissors to dismantle the whole agreement would be to do more than the Act stipulates.

13. For these reasons we reject the Appellant's principal argument; assuming, against the secondary argument which we shall shortly turn to, that the compromise agreement is an enforceable contract, it is in our view not made void in total by reason of its failure to comply with section 203 and that to the extent that it contains a compromise of contractual claims it remains enforceable. We see no error of law in the Tribunal's conclusion on this principal argument. We note, though, as the distinction may arise in other cases, that this has not been a case in which a payor (who has agreed and has paid ostensibly for the full and final settlement of all claims), asserts that it is wrong that only some of those claims should transpire to be effectively compromised. There is no claim by the Respondents on such a ground; on the contrary, as will have been seen, they seek to enforce the compromise in its truncated form. If this distinction is of any materiality it can be dealt with when it arises in other cases.
14. We now turn to the appellant's secondary and alternative claim. It is that there is such ambiguity and uncertainty in the letter of 4 December 1998 that there cannot have been consensus ad idem and hence there is no contract at all. Ms McManus asserts that the intent of the letter is that £10,000 has to be paid and that if, as the Respondents urge, the whole £10,000 is not a contractual obligation then the arrangement is void. However, the Tribunal found no ambiguity in the arrangements made. They read it as an obligation to pay £3,500 for certain but that the further £6,500 was subject to two provisions. First of all Mr Sutherland had, in the First Respondents' opinion, satisfactorily to hand over all his responsibilities and company property prior to 15 December 1998 and, secondly, even then there would arise no obligation on the company to pay the further sum. The words "the Company may increase that amount" indicated that, at most, Mr Sutherland could hope that a discretion would then be exercised in his favour.
15. There is no reason to think that either the Respondents or Mr Sutherland was taking legal advice as at 4 December 1998 and it would be wrong, in our view, to approach the letter of that date as if it was a professionally prepared agreement. Some latitude is required and, approaching the letter in that way, we agree with the Tribunal there is here no material ambiguity. Tribunals should be, and the Employment Tribunal here was, reluctant to strike down an apparently businesslike arrangement on a legalistic ground such as possible ambiguity. We have no reason to think that there was no consensus ad idem.
16. In conclusion, we find no error of law in the Tribunal's determination that it had no jurisdiction to deal with the Applicant's claims insofar as they related to damages for breach of contract. We must therefore dismiss the appeal.