27 August 2008

Holding employees to their promises

A recent Court of Appeal decision shows the value of obtaining carefully drafted warranties from departing employees in a compromise agreement. In Collidge v Freeport plc, Mr Collidge was suspended, pending investigation into various allegations made against him. He denied the allegations and agreed a compromise agreement with the company. The compromise agreement included a common warranty from Mr Collidge that there were no circumstances of which he was aware at the date of signing the agreement that would have entitled Freeport to terminate his employment without notice.   

Following his exit, the investigation continued. Freeport concluded that contrary to the warranty, at the date of signing the agreement, there had indeed been circumstances that would have entitled it to dismiss Mr Collidge without notice. Freeport’s obligations under the agreement, in particular its obligation to make certain payments to Mr Collidge, were expressed at the beginning of the agreement to be ‘subject to and conditional upon the terms set out below’, which included Mr Collidge’s warranty. Freeport argued that in light of the investigation findings, it should no longer have to make various payments to Mr Collidge. The Court of Appeal agreed, on the basis that Freeport’s obligations, including payment, were conditional upon the warranty on which it had relied.

This case highlights the importance of careful drafting. Better still, employers should complete investigations before signing compromise agreements.  

Category: Article