An extremely important element of any compromise agreement is the “all claims” clause (also known as the “waiver of claims” clause). This clause is an attempt by the employer to limit or exclude its liability relating to future claims that an employee may have – either currently or in the future. In this article we’ll take a look at:
- The purpose of a compromise agreement;
- Why it is necessary to specifically exclude all claims;
- The consequences of not excluding all claims; and
- Which claims are excluded from the “all claims” ambit
The purpose of compromise agreements
Employees (and workers, a different category of persons working under a contract of service) are vested with certain rights at their employment by virtue of their contract of employment and statute. Under statute employees (and workers in some areas) have the right to, for example, not be discriminated against and not be unfairly dismissed. They can exercise these rights at any time (depending upon the type of claim and their employment status) – at the recruitment stage, during their employment, and at the termination of their contract of employment. Where there may be a potential claim, employers will want to limit or exclude the employee’s right to make such claims in return for consideration (a cash payment, normally).
Why it is necessary to exclude all claims
When the employer is trying to limit or exclude its liability, it must be careful to list out all potential claims that the worker or employee may have. This is primarily a result of the Court of Appeal’s judgment in Hinton v East London University. In Hinton the Court of Appeal held that compromise agreements must clearly identify all the statutory claims that are being settled in the compromise agreement. If there is a failure to do so then there is no binding waiver and the employee is entitled to bring a claim for any statutory claims not included in the compromise agreement.
If there is general wording in the compromise agreement (i.e. “all statutory claims are excluded”) then this will also not suffice. It would also be necessary not only to identify the statute that is being excluded (such as the “Equality Act 2010”) but also to include all potential claims under that Act, for example “sex discrimination” or “direct sex discrimination”. Further, if actual proceedings are ongoing against the employer, the compromise agreement should make specific reference to this.
An interesting further comment in Hinton is the suggestion that employment lawyers should not use standard template compromise agreements but that each compromise agreement should be tailored to the specific circumstances of the parties in any one instance.
Consequences of not excluding all claims
Should the employer fail to either exclude all the claims (i.e. through insufficient and general wording) the employee is free to pursue their employer for any and all relevant claims in their circumstances. If, however, the employer excludes every claim but (for some reason) the waiver of the right to claim unfair dismissal under s.94(1) Employment Rights Act 1996 is left out of the compromise agreement then the employee is entitled to pursue their employer for unfair dismissal (should, again, this be possible on the particular facts).
Which claims are excluded from the “all claims” ambit?
Generally, the employee’s right to claim for personal injury (except for personal injury claims that they don’t have knowledge of at the time of the compromise agreement) is preserved under the compromise agreement. However, the employer can (and may) attempt to exclude liability for personal injury. The employee’s right to claim for accrued pension rights should also be preserved under the compromise agreement.