In the recent Court of Appeal decision of Collidge v Freeport the Court upheld a “clawback” provision in a compromise agreement.

The case concerned an employee of Freeport, Mr C, who had resigned amidst allegations of financial impropriety. A compromise agreement was agreed and included a payment of compensation which was subject to and conditional upon Mr C not having breached his contract of employment prior to the date of the agreement.  The wording used was, “there are no circumstances of which you are aware or of which you ought reasonably to be aware which would entitle or have entitled the company to terminate your employment without notice.”

Freeport refused to pay under the agreement having discovered several breaches by Mr C.

The Court held that the term was an important condition and that there were numerous circumstances in which Mr C had committed repudiatory breaches which would have entitled Freeport to terminate the contract without notice. Therefore, the Court held that Mr C was not entitled to payment of the compensation set out in the compromise agreement.

• TIP: Employers should amend their compromise agreements to include this sort of clawback clause.  Please note that our precedent compromise agreement which is available for purchase provides for such a clawback provision and also reflects other case law in this area.

• If you have any queries about any of the matters raised in this article or any other employment law issue please contact David Greenhalgh at H2O Law LLP on 020 7405 4700.

Whilst H2O Law LLP makes every attempt to ensure the accuracy and reliability of the information contained in this article the information should not be relied upon as a substitute for formal legal advice.  H2O Law LLP, its employees and agents will not be responsible for any loss, howsoever arising, from the use of or reliance upon this information.