A recent case has underlined why
employers should show considerable vigilance when they are using compromise or
The case of BCCI v Ali
and Others concerned the extent to which a compromise agreement or Acas COT 3
agreement can seek to exclude claims of which the parties were unaware when
they made the agreement.
This is an issue that
often occurs on terminations settled via Acas agreements. Until now such
agreements commonly used all-encompassing language such as ‘full and final
settlement of all and any claims’.
Mr Naeem was one of a
number of staff made redundant by the bank, BCCI, in 1990. After consulting
Acas and the employees’ trade union a notice was sent to Mr Naeem terminating
his employment. A schedule was attached summarising the payment on offer. An
Acas COT3 agreement was signed and stated:
[Mr Naeem] agrees to accept the terms set out in the documents attached in full
and final settlement of all or any claims whether under statute, common law or
equity of whatsoever nature that exist or may exist and in particular, all or
any claims rights or applications of whatsoever nature that the applicant has
or may have or has made or could make in or to the industrial tribunal, except
the applicant’s rights under the respondent’s [the bank’s] pension scheme."
The bank later went
into liquidation. A number of employees, Mr Naeem included, sought to claim
stigma damages caused to them by their association with the bank, which was
said to handicap them in obtaining other employment. The liquidators argued
that Mr Naeem was debarred from bringing such a claim because he had signed the
COT3 agreement preventing him from bringing "all or any claims".
The House of Lords
decided that the intention could not have been to prevent Mr Naeem bringing
claims which he could not have contemplated at the time of signing the COT3
agreement. Lord Bingham cited a latent claim for personal injury caused to an
employee by the negligence of an employer but unknown at the time of any
agreement. The Lords felt that such a claim could not be prevented by an
all-encompassing COT 3 agreement.
But the House of Lords
went on to say that it was possible for such agreements to exclude all or any
claims, even those not even contemplated, provided that clear language is used
to that effect in the agreement and that is the intention of the parties.
– The effect of this
case is that very specific wording is now required in such agreements if the
intention is to exclude all possible employment claims.
– Decide if it is
intended that the agreement is to be in full and final settlement of all claims
or if it is to be limited to a specific claim either in dispute or intended.
– If the agreement is
to settle an existing claim limit the agreement to that claim or claims only.
– Where an
all-encompassing settlement is intended a separate clause is needed in the
agreement. The agreement should identify the range of complaints the employee
may potentially have. The employee should be asked to warrant in the agreement
that they have raised any and all claims they may potentially have with their
independent adviser and the claims listed in the agreement are all potential
By Jason Smith, a
solicitor at Palser Grossman solicitors, email@example.com