The Employment Appeal Tribunal (EAT) has recently reiterated the potential out ome of an employee's breach of warranty under a compromise agreement.

Compromise agreements, if properly drafted, constitute a valid waiver of statutory and contractual claims that an individual may have against their employer or former employer, in return for almost invariably a cash payment.

The amount of the settlement is going to be influenced by the strength of the individual's claims. Therefore, in reaching any compromise agreement, employees are frequently required to warrant that they have not committed any repudiatory breaches of their contract of employment (which would have entitled the employer to terminate their employment without notice or payment in lieu of notice).

In Stanley v Capital Law LLP, the EAT accepted an employer's defence that it had relied on the claimant's breach of warranty to withhold payment under a compromise agreement.

In Stanley, the claimant had warranted that there were no circumstances of which he was aware or ought reasonably to be aware that would amount to a repudiatory breach by him of any express or implied term of his contract of employment. A few days after the execution of the compromise agreement made between the claimant and respondent, the respondent employer received a complaint from one of its clients about a substantial number of failings by the claimant in his dealing with that client. The respondent thus treated the employee's actions as a breach of the warranty in the compromise agreement with the result that it refused to pay the termination payment.

The claimant argued that the respondent had been guilty of a repudiatory breach of the compromise agreement and that he was therefore entitled to pursue any employment and discriminatory claims he might have against the respondent. However, the EAT held that the claimant was prevented from pursuing such claims and that the respondent had been entitled to refuse to pay the termination payment due to the claimant's misconduct during employment which amounted to a repudiatory breach of his contract of employment and therefore a breach of the warranty in the compromise agreement. The EAT was satisfied that the claimant's conduct in dealing with the respondent's client would have justified summary dismissal.

The case is a warning to employees who have misled their employers and think they have got away with it. It is good news to employers but also emphasises the importance of a properly drafted compromise agreement, and that the 'boiler plate' clauses in such an agreement can sometimes make a significant difference.

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