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Compromise agreements-conditional payment terms allowed for clawback
Employers are pleased with Collidge v Freeport Plc whereby the employer in question made a severance payment conditional on a warranty that the employee has not been in gross misconduct. Employee lawyers on the other hand will be wary as they will view such terms as being open to abuse as an excuse for drawback on monies paid by employers. Employees and not employers however will know if there has been a case of gross misconduct and if none will not usually resist such clauses.
The facts here were that Collidge was a director and employee of Freeport. The board wished to suspend C to investigate certain activities. C offered to resign and enter into a compromise agreement.
This agreement made payment conditional on certain terms including a warranty from Collidge that he was not or ought to have been aware of instances of gross misconduct.
Freeport later found alleged instances of breach and refused to pay.
The High Court found the payment was a condition precedent and so Freeport was not obliged to pay unless the facts in the clause were true.
Collidge appealed the Court of Appeal which dismissed his appeal finding the High Court was right to so find as the clause in question was not merely a warranty but a promise that the facts in the clause was true.
On the facts here the clause worked because the investigation had already begun but in other cases more specific wording would be required in order to invoke the claw back wording effectively.
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