Be Clear When Compromising

Palihakkara v British Telecommunications plc

Generally speaking, workers cannot agree to contract out of their right to bring a tribunal claim. However, they can settle a dispute with their employer by signing a compromise agreement, as long as it satisfies certain statutory requirements.

In Palihakkara v British Telecommunications plc (IDS 823), the Employment Appeal Tribunal (EAT) said that the agreement must satisfy all the statutory requirements, whatever other evidence there might be to support the employer’s intentions.

Basic facts

Ms Palihakkara worked for BT from September 2001 to May 2005. She lodged a grievance in 2002, complaining of bullying and racial harassment, followed by two more grievances in 2003. She appealed against the outcome of those grievances in November 2004. At the end of March 2005 she applied for voluntary redundancy, and signed a compromise agreement a month later.

Clause 2.2 of the agreement said that it was in ”full and final settlement of all claims past or future arising out of the termination of her employment”, and included, among other things, “claims in respect of … redundancy payment, unfair dismissal, discrimination on grounds of race, sex and/or disability …”.

Her employment finished at the end of May, but on 26 June she submitted a 14-page grievance letter and then lodged a tribunal claim for race and sex discrimination, unfair dismissal and a redundancy payment.

The tribunal dismissed her claims, saying that the agreement was valid and enforceable.

Arguments on appeal

On appeal, Ms Palihakkara argued that clause 2.2 only “compromised” claims arising out of the termination of her employment, and not the discrimination that took place during the course of her employment. She also argued that the agreement was defective in that not all the statutory conditions regulating compromise agreements had been satisfied.

BT accepted that it would have been better to state that the agreement related to claims arising both during and at the end of the employment relationship, but as it referred to both “past and future” claims, all were compromised. It also agreed that the agreement was defective, but said the oversight was “formulaic” rather than “substantive”.

Instead it argued that her claim could not proceed because she had not complied with the requirements of the statutory dispute resolution procedure regulations. In other words, she had not lodged a grievance and then allowed the company to resolve the matter internally before submitting her claim to the tribunal after waiting 28 days.

EAT decision

The EAT agreed with Ms Palihakkara, however, saying that it was clear from the wording that clause 2.2 only related to claims arising out of the termination of her employment. It said that the use of the word “past” did not help BT because whatever way it was construed, it would still only relate to the termination of her employment and not to claims prior to that.

That meant she could not continue with her claims for unfair dismissal and a redundancy payment, but she could bring proceedings for race and sex discrimination.

BT then argued that the EAT should look at the e-mail correspondence with Ms Palihakkara which made clear that the company intended that all claims should be compromised. However, the appeal tribunal refused, saying that the agreement was clear enough on that point.

But it was scathing of the agreement overall, saying it did not satisfy the requirements of the discrimination statutes for the purposes of entering into a valid compromise contract. And it criticised clause 2.2, saying it was “laced with Latin and threatening costs” and did not meet the industry standard.

Finally the EAT said Ms Palihakkara had complied with the statutory dispute resolution procedure, in that once it was established that the compromise agreement was dead, her existing grievance was still live. In any event, it said that it had been revived by the letter she lodged on 26 June.