United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR N GIFFIN (One of Her Majesty's Counsel) On behalf of FRU
For the Respondent	MR P T ROSE (One of Her Majesty's Counsel) Instructed by: British Telecommunications Plc Legal Services Post Point LF19 Libra House Sunrise Parkway Linford House Milton Keynes MK14 6PH


 


SUMMARY

Practice and Procedure – Compromise

1. On the true construction of a compromise agreement in respect of claims arising on the termination of the contract of employment, claims arising during the relationship and arising otherwise than on termination were not compromised. The agreement did not meet the industry standard for such model agreements.

2. Further the agreement missed out a condition required for a valid compromise under Sex Discrimination Act 1975 and Race Relations Act 1976 in that it did not say that all the conditions had been complied with (even though they had been).

3. Since the agreement was invalid, there was a grievance extant at the date of termination and the Claimant was not to be shut out of the Employment Tribunal for failing to lodge a grievance.


 


HIS HONOUR JUDGE McMULLEN QC

1. This case is about an agreement to compromise a claim before an Employment Tribunal. The Judgment represents the views of all three members. We will refer to the parties as Claimant and Respondent.
2. It is a joined appeal by the Claimant in those proceedings against a Judgment of an Employment Tribunal Chairman, Mr Pettigrew sitting alone at Watford, registered with reasons on 2 December 2005. The Claimant represented herself. The Respondent was represented by a Solicitor.

EAT Procedure

3. At the outset of this hearing we have been presented with two applications. These are to raise new points by way of amendments or reamendments to the existing documents. This is against a background where the sole issue on which the claim is proceeding, as allowed by HHJ Reid QC, is one which is itself said to be a new point by the Respondent, represented by Mr Paul Rose QC, a claim resisted by Mr Nigel Giffin QC on behalf of the Claimant, appearing under the aegis of FRU. Therefore at the beginning of these proceedings we have descended into what looks like a rather unattractive dispute about whether amendments should be allowed.
4. First Mr Giffin argued his amendment point; Mr Rose resisted. We applied to these applications the long established sequence of authorities, indicating that only in exceptional circumstances will the EAT allow a point to be raised which has not been ventilated before the Employment Tribunal. There is a range of policy reasons behind that, including finality of judgment and the right of a party to have a matter determined by a three-person Tribunal drawn from the community, and not to have it determined, however benignly, by a three-person body at the EAT in London or Edinburgh. These authorities begin with Kumchyk v Derby CC [1978] ICR 116, and have most recently been expounded when the Court of Appeal approved Leicestershire County Council v UNISON [2005] IRLR 930 EAT.
5. The principal issue is whether the point falls within the exceptional category. One ground for allowing an appeal to be raised is where there is what Laws LJ memorably described as a hard-edged question of law. Even so, such questions may involve some determination of the factual circumstances which is an indicator away from allowing a new point. The position in this case also involves what is said to be prejudice, a relevant factor. This is prejudice not simply in the form that ordinary people would understand it, which is that if the other side is allowed to raise this point they might win the case, but prejudice in the way in which further proceedings might be required, for example examination by the Employment Tribunal or lack of preparation, surprise or ambush, however it is put, in the other camp.
6. We do not take the simple solution, which is that if one side is asking for an amendment and so is the other we should allow them both, but we will look at each one on its particular merits. The application made by Mr Giffin satisfies Laws LJ's test; it is a very simple short point and it is one which Mr Rose, to his credit, acknowledges presents him with some difficulty, but not a difficulty which cannot be overcome by his argument today. We therefore regard this as a hard-edged question of law and we will, in conjunction with the remarks we make in a moment about the other two applications, regard it as an exceptional case.
7. As to the application made by Mr Rose, important in our consideration is Mr Giffin's lack of resistance to this. Why should we come between the parties when they do not oppose the point being argued. That, however, is too simple because the Court's time and finality of proceedings are important. This application relates to the grievance procedure now set out in the EA 2002 (DR) Regulations 2004. It too looks an impressive point so that, if the Respondent is allowed to raise this point and is correct, the Claimant will fail because she did not raise her grievance at the appropriate time.
8. We have been taken to the way in which the Respondent first, it is said, raised this in the notice of appearance. This was a response entered professionally. If the Respondent was going to say that whatever grievance the Claimant raised (foreshadowed in paragraph 2.6), it did not satisfy the terms of the statute, it would have said so; it did not. The issue was not raised at the PHR and it should not be raised now, unless exceptional circumstances ensue.
9. There is, however, no need for any further factual investigation of this matter. We can look at the documents to see whether a grievance was made or not. Since the grievance needs to be made in writing we can construe that. No further attention is required by the Employment Tribunal. On its own, however, we would have refused this application. What makes it exceptional is that it is not opposed by the Claimant, and Mr Rose in his own submissions suggested that since we were exercising discretion, proportionality and fairness come into it. When deciding applications made by opposing parties, it is a difficult line to draw between the simplistic tit-for-tat approach and exercising fairness and proportionality. However, we can draw that line for we consider Mr Rose is right, that in the context of us allowing Mr Giffin's application it would not be right for us to refuse his. It is fair that the point can be ventilated and we can see how this, in the circumstances today, constitutes an exceptional case.
10. We turn then to the third issue, which is whether or not the substantive issue in the case is a new point. We bear in mind that in the exchange which has taken place before us Mr Rose accepts that a construction point is raised by the Claimant, at least in her application for a review. The application for a review was determined on the papers by the Chairman. Mr Rose accepts it involves a misunderstanding, at least in part, albeit not as great as the misunderstanding with which Mr Giffin charges the Chairman.
11. We also bear in mind that this hearing is an appeal against a Review Judgment as well as the PHR, and so the issue is properly before us. Given, as we hold, that the Claimant was raising a construction point in her application for review, and that the Chairman has maintained his position in relation to what was her straightforward claim about the misunderstanding she was under from her Solicitor, we consider that this is not a new point and therefore it is properly raised pursuant to the order of HHJ Reid QC. We do not need to train our attention on the authorities which we cited relating to new points.

Introduction to the appeal

12. The Claimant raised a number of discrimination and termination of employment related claims and sought to be released from a compromise agreement she had signed. The Respondent sought to enforce it. The essential issue as defined by the Employment Tribunal Chairman was whether the Claimant compromised her claims in an enforceable agreement. The Chairman decided in favour of the agreement. The Claimant sought a review. The Chairman on the papers refused it and gave another Judgment on 4 January 2006. The Claimant appeals against both Judgments. Directions sending this appeal to a preliminary hearing were given in Chambers by HHJ Burke QC. At that preliminary hearing HHJ Reid QC dismissed most of the notice of appeal and had allowed only one point to be made. He directed that the case, as an exception to section 28 of the Employment Tribunals Act 1996, should be heard by a three-person EAT instead of a Judge alone, it being an appeal from a Chairman alone. We were asked to consider during the course of this hearing what might be described as the industry standard for compromise agreements, and we have brought our experience to assist the advocates in this case in the Judgment we give.
13. Before us, by the rulings we gave earlier, there are now three points: 1) the construction of the compromise agreement; 2) compliance with the statutory conditions for compromise, and 3) compliance with the statutory grievance procedure before instituting a claim.

The legislation

14. The relevant provisions of the legislation are as follow. By section 203 Employment Rights Act 1996, restrictions are placed on contracting out. It makes a compromise contract valid provided the terms of the agreement are set out in conformity with section 203. Similar provisions apply in respect of claims made under the Sex Discrimination Act 1975 (see section 77) and the Race Relations Act 1976 (see section 72). In broad terms the three statutes make unenforceable by the person in whose favour the term would operate a term in a contract which purports to exclude or limit any provision of the Act. In order for such a compromise contract, as it is called in the discrimination legislation, and a compromise agreement in the Employment Rights Act, to be enforceable, the conditions include the following (Race Relations Act 1976 s72(4A)):

"(4A) The conditions regulating compromise contracts under this Act are that--

(a) the contract must be in writing;

(b) the contract must relate to the particular complaint;

(c) the complainant must have received advice from a relevant independent adviser as to the terms and effect of the proposed contract and in particular its effect on his ability to pursue his complaint before an employment tribunal;

(d) there must be in force, when the adviser gives the advice, a contract of insurance, or an indemnity provided for members of a profession or professional body, covering the risk of a claim by the complainant in respect of loss arising in consequence of the advice;

(e) the contract must identify the adviser; and

(f) the contract must state that the conditions regulating compromise contracts under this Act are satisfied."

We are going to be concerned in this case with (f) above.

15. Since 2004 it has been public policy to impose by statue, and to visit failures by compensation penalties, a requirement that the parties, before going to a Tribunal, seek to resolve disputes between themselves. A grievance must be presented which must precede any relevant claim to an Employment Tribunal: see section 32 of the Employment Act 2002. In respect of the failure to comply with a procedure, an award of compensation may be adjusted: see section 31. Pursuant to paragraph 6 of Schedule 2, a grievance procedure must be complied with so that step one requires the employee to set out the grievance in writing and send the statement, or a copy of it, to the employer. Step three is an appeal and if he is to appeal he must inform his employer. There is no requirement, however, for an appeal to be complied with. In respect of the application of the grievance procedure, paragraph 6 of the Employment Act 2002 Dispute Resolution Regulations 2004, provides as follows:

"(4) Neither of the grievance procedures applies where—

(a) the employee has ceased to be employed by the employer

(b) neither procedure has been commenced; and

(c) Since the employee ceased to be employed it has ceased to be reasonably practicable for him to comply with paragraph 6 or 9 of Schedule 2."

16. Breach of contract claims may be made in an Employment Tribunal pursuant to Extension of Jurisdiction Order 1994, Article 3, which amongst other things restricts the claim to one which "arises or is outstanding on the termination of the employee's employment".

The facts

17. The facts are not in dispute in this case. The Claimant worked for the Respondent between September 2001 and May 2005, as a Finance Manager/Finance Analyst. Within the team that she worked in, she was (as she contends) subjected to a sustained course of bullying and racial harassment. As the Tribunal recorded, the Claimant had submitted a grievance in 2002 but the issues she raised had not been resolved by the time her employment ended. As matters went on, her health deteriorated and she suffered from stress and depression. Voluntary redundancy was mooted. Originally the Claimant insisted that she did not want this, but rather to have her grievances resolved, but at the end of March 2005 after going off sick and "going to pieces" she did ask for severance.
18. The background explains a history of dissatisfaction by the Claimant with her employment relationship so that she raised a grievance in 2003 and a fuller grievance later that year. The outcome of the grievance was reported in 2004 and in November of that year she lodged an appeal.
19. On 31 March 2005 she decided to apply for a package of voluntary redundancy then on offer from her employer, which is a national provider of telephonic services. On 28 April 2005 she signed a compromise agreement and on 31 May 2005 left the employment. On 26 June she lodged a 14 page grievance letter, which it is true to say deals with some of the matters which had been the source of her complaints over the years. The agreement provides as follows:

"AGREEMENT

1. This is an Agreement made on 28 April 2005 between Samantha Palihakkara and British Telecommunications plc ("'BT"). It is BT's wish that the employment of Samantha Palihakkara should come to an end. BT is willing to make a severance payment by way of compensation for termination of employment of £12,897.15 (in respect of a Newstart leaver payment) the first £30,000 to be paid without any deduction of income tax. This payment will be made to Samantha Palihakkara upon termination of her employment.

2.1 It is hereby agreed that Samantha Palihakkara's employment by BT will terminate on 31 May 2005.

2.2 BT will pay and Samantha Palihakkara will accept the payment referred to in Clause 1 above in full and final settlement of all claims past or future arising out of the termination of her employment, save for her entitlement under the BT Pension Scheme and claims for damages for personal injury, including inter alia, claims in respect of pay in lieu of notice, redundancy payment, unfair dismissal, discrimination on grounds of race, sex and/or disability, deduction from wages, holiday pay, lack of opportunity to receive a bonus payment in respect of performance during 2005/06 and damages for breach of contract and, in particular Samantha Palihakkara accepts that the payment will also fully compensate her in respect of all or any amounts which an Employment Tribunal may award her. BT reserves the right to bring this clause to the attention of an Employment Tribunal on any question of costs.

2.3 In consideration of the payment referred to in Clause 2.2 above, Samantha Palihakkara agrees to refrain from instituting before an Employment Tribunal proceedings against BT or any servant or agent of BT in respect of all or any of the claims referred to in Clause 2:2 above. The facts out of which a possible complaint by Samantha Palihakkara arises are that her employment with BT is to end with effect from 31 May 2005 under the terms of the Agreement.

2.4 Samantha Palihakkara agrees to return all BT equipment, software and documents currently in her possession including her laptop to BT on or before 31 May 2005.

2.5 Samantha Palihakkara formally withdraws her grievance dated 20 June 2003 and subsequent 2^nd stage appeal dated 26 November 2004 and agrees that BT need take no further action with regard to them.

3. The parties hereto believe the following statements to be true:

3.1 Samantha Palihakkara has received independent legal advice from a Qualified Lawyer (within the meaning of the Employment Rights Act 1996 ("The Qualified Lawyer") as to the terms and effect of this Agreement and in particular its effect on her ability to pursue her rights before an Employment Tribunal namely Robert Dixon who is a Solicitor of the Supreme Court holding a current Practising Certificate; and

3.2 There was in force, when the Qualified Lawyer gave the advice referred to in Clause 3.1 insurance governing the risk of a claim by Samantha Palihakkara in respect of loss arising in consequence of the advice.

3.3 Having been provided with an appropriate invoice BT will make payment direct to Solicitors Messrs Turbervilles in respect of advice given to Samantha Palihakkara in relation to the termination of her employment in a sum not exceeding £500 plus value added tax.

4.1 BT will indemnify Samantha Palihakkara in respect of any tax or national insurance liability in respect of the first £30000 payable under the terms of Clause I above.

5. It is confirmed that the conditions regulating this Agreement in Section 203 of the Employment Rights Act 1996 are satisfied,

6. The parties confirm their agreement to the terms set out above."

20. In addition, since it was an issue in the proceedings, there was email correspondence between the Claimant, at this time advised by a Solicitor, and her employer which indicates the Respondent's appreciation of what the compromise agreement was about.

The Claimant's case

21. The Claimant submitted that the Employment Tribunal Chairman had erred in law in all three of the respects we have identified above. Part of this is a little unfair since the Chairman did not have before him the new points which we have allowed to be argued exceptionally in this case.

Construction of the compromise

22. It is contended primarily that the construction of clause 2.2 admits only of a compromise of those claims which arise out of the termination of the Claimant's employment, whereas the claims which she seeks to advance before the Tribunal are those of discrimination during the course of her employment. It is contended that the document itself constitutes the whole agreement of the parties and reliance should not be placed on email traffic preceding it as being inadmissible and representing solely the view of the Respondent.
23. Whatever may be the correct scope of the compromise agreement, it did not exclude claims for breach of contract since these claims were within the scope of the 1994 order.

The statutory conditions for compromise

24. It was contended that the absence of a declaration in line with for example the Race Relations Act 1976, section 72(4)(a)(f), was fatal, since it was a condition of validity of the contract that this be in place. Finally it was contended that, even if the Claimant were required to bring a grievance in advance, she had done so and waited the necessary 28 days before submitting her claim to the Tribunal and, in any event, the material was still extant at that time

Grievance procedure

25. As to the point made on behalf of the Respondent that the Claimant did not put in a grievance in accordance with the procedures we have itemised above, it is contended that all she did was to withdraw her appeal, there being no requirement in the statutory regime for there to be an appeal submitted. In any event she did submit a grievance. She had submitted a grievance in the past which was extant and the Respondent had refused to deal with it. She had also submitted a grievance at the end of her employment relationship.

The Respondent's case

26. On behalf of the Respondent it is contended as follows.

Construction of the compromise

27. Mr Rose accepted that the point was not clear-cut and he himself indicated that he would have expected it to have been drafted in a way which covered both claims arising during and at the end of the employment relationship. The use of the word past or future means that all claims are being compromised, including those from 2003 and 2004. If this document is ambiguous, which he accepted it was, then it was permissible to go to the email traffic to elucidate the intention of the parties.

The statutory conditions for compromise

28. Mr Rose contended that there was, as is obvious, a missing part of the contract corresponding to section 72(4)(a)(f), but all of the matters as a matter of substance had been complied with; all that was missing was an assertion that all the matters which they had dealt with, were dealt with. As a matter of substance therefore the condition had been met, for these provisions in the statute were simply formulaic rather than substantive.

Grievance procedure

29. The policy of the legislation is to ensure that the parties have an opportunity to tackle a grievance or a disciplinary matter internally. The Claimant had failed to do this. There was no extant grievance. It was simply the one which existed in the past and had been reiterated.

The legal principles

30. The legal principles to be applied in this case emerge from the authorities which we have been taken to and which include the following. In Crown v Powel ex p. Marquis of Camden [1925] 1 KB 641 at 643, Hewart LCJ, dealing with an arbitration clause about questions or difference "arising out of the termination of the tenancy", held as follows:

"It is apparent that the termination of the tenancy of the holding must precede and be the origin of that particular class of question or difference."

31. That approach seems to us to be the same by way of language as would be applicable in our case. When dealing with a defective compromise agreement Morison J (President) and members decided in Lunt v Merseyside Tech Ltd [1999] ICR 17 EAT, that a failure to itemise the points set out as conditions in the relevant statute vitiated the agreement. Although it is possible to correct a typographical mistake, in that case one which described the correct section, 203(3)(b) as 223, no other departure from the conditions in the relevant statute was allowed for.
32. In Royal National Orthopaedic Hospital Trust v Howard [2002] IRLR 849, HHJ Reid QC and members were asked to construe a very wide contract of compromise and held this:

"What gave her her claim was the alleged conduct of the hospital in refusing to allow her to act as a technician in the late summer of 2000. In our judgment, the true construction of the agreement does not preclude her from bringing these proceedings."

33. The treatment of compromise agreements was also the subject of Hinton v University of East London [2005] IRLR 552, in which the Court of Appeal held that a description of the nature of the claim being compromised must be vouchsafed and as a matter of good practice there ought to be a description of the right being compromised.
34. Finally for the purposes of the statutory grievance regime in Canary Wharf Management Ltd v Edebi [2006] IRLR 416, Elias J (President) said that there must, at the time of the submission of a grievance, be a valid extant grievance:

"First, the timing of the grievance. There is no maximum time limit prior to lodging of the claim to the tribunal in which the grievance must have been raised. There is the minimum period of 28 days which must be allowed for the employer to deal with it and go through the relevant procedures, but no maximum period. That is not to say, however, that the act of raising a compliant months or years prior to lodging the tribunal claim will necessarily constitute the appropriate raising of the grievance. The grievance must be extant. If it can no longer properly be said to be an outstanding grievance, perhaps because the employee has not pursued it in circumstances where it may properly be inferred that he no longer wishes to have it determined, then it will be necessary for the employee to raise the complaint again in written form."

Conclusions

35. With those principles in mind we turn to our conclusions in this case. We prefer the arguments of the Claimant and have decided that the appeal should be allowed. We will take the points as we set them out earlier.

Construction of the compromse

36. In our judgment the only construction of clause 2.2 is that it relates to claims arising out of the termination of the Claimant's employment and not to claims which were existing in advance of the termination and which, as in this case, relate to events in 2003 and 2004. The use of the word "termination" of employment is carefully constructed and it appears also in clause 1, clause 3.3 and elsewhere in the contract. The clause on its own does not compromise claims other than those which arose out of the termination of her employment.
37. There are references to termination of employment in clause 1, and the express reference in clause 1 to the purpose of the agreement being that the employment should come to an end. The parties have also set out the facts on which they are entering into the agreement and that supports the view we have taken. The sole argument of any substance Mr Rose put forward is based upon clause 2.5, in which the Claimant withdrew her grievance, but that simply releases the Respondent from taking further action in relation to the grievance and does not in any way diminish the force of the plain terms of clause 2.2.
38. We accept Mr Giffin's point that the use of the word "past" sheds no light on this because whatever may be the correct construction of past or future they must arise out of the termination of the employment. We uphold the construction advanced on behalf of the Claimant, that this does not preclude her from bringing the claims which we have set out above.
39. We have not found it necessary, or even permissible, to look at the email traffic in order to assist. There is no doubt, however, that this indicates in the mind of the employer that what was being compromised was more than the simple termination rights, and there is an indication that the Claimant herself thought that she was being undervalued. Nevertheless, it is impermissible, since we find the agreement clear, for us to refer to that material. The parties must be assumed to have reduced into writing their agreement and this document serves that purpose.
40. As to breach of contract, we reject the argument of Mr Rose that the claims here can only be made in respect of those which arose out of the termination of the Claimant's employment. We think he overlooked the full wording of the 1994 Order which we have cited above: a claim can be brought only after the employment has terminated but it can relate to breach of contract in the termination itself or which is outstanding upon the termination, for example outstanding wages, holidays and notice.
41. In order to put flesh onto this, the claims which were compromised were an unfair dismissal claim and a claim for a redundancy payment. Those not compromised were claims of race and sex discrimination, consisting of bullying and harassment and victimisation, together with bonus payments claims relating to periods in advance of the express reservation of bonus claims for the final year. Clause 2.2, laced with Latin and threatening costs, does not meet the industry standard.

The statutory conditions

42. This agreement is deficient. While it is perfectly plain it can regulate rights under the Employment Rights Act, it does not conform to either of the discrimination statutes for the purposes of entering into a valid compromise contract. Nothing can save it. We can see the force of Mr Rose's submission that the policy of the legislation is to ensure that employees are protected against making bad agreements. Indeed they are well protected since the requirements for quality control of advice given by lawyers is set out in the statutes. But he accepts that the use of the word condition in the statute means that a failure to follow it will be a breach of a fundamental term. The absence of a clause confirming that the conditions in these discrimination statutes are satisfied is fatal. We have said that there is some force in Mr Rose's argument as a matter of policy because in this case the parties knew that there was an issue about the compromise agreement; the Claimant did take legal advice; the parties seem to have had their eyes open. But the statutes are plain and require a condition. Following Lunt, as we do, there was little Mr Rose could add to his submission and it fails.

Grievance procedure

43. It follows from our rejection of the validity of the compromise contract that there was no contract in place precluding the Claimant from bringing a case. Mr Rose accepted that there was extant, at the time the agreement was signed, a grievance. It had not yet been followed through because the Claimant was seeking to appeal, but she had at least expressed her dissatisfaction with the matters. The agreement cannot be enforced against her, thus when the Respondent refused to acknowledge her second grievance post-termination, it was doing so pursuant to an agreement that was invalid. There is force in Mr Giffin's argument that it was not reasonably practicable for her to comply in the face of an employer seeking to assert the validity of an invalid agreement. In any event, the argument is circular. Once the agreement is dead as far as precluding her right to sue, it follows that the extant grievance was live, and remained and was anyway revived by the grievance submitted on 26 June.
44. Thus the Claimant was not in breach of the statutory procedure and there is no bar to her presenting the claim to the Employment Tribunal. This point was a new point taken today and the Chairman cannot be held to be at fault in his legal analysis in not seeing this argument, nor the argument on sections 72 and 77 respectively of the discrimination statutes. He is, with respect, wrong in his approach to construction and we think he misunderstood the way in which the case was being put by the Claimant. True it is she advanced three arguments relating to poor advice, duress and mental stress, as seeking to avoid the consequences of the compromise contract, but it is plain from her application for review at least that she was raising a complaint about the construction of the agreement.

Result

45. We will uphold the Chairman's Judgment in so far as it relates to those matters in the compromise contract, save for sex discrimination, race discrimination and breach of contract, which are available to be tried now. We should just add that there is no freestanding claim available in a Tribunal for breach by an employer of the statutory regime. We would very much like to thank Mr Giffin and Mr Rose for their very helpful and succinct submissions today. The appeal is allowed.