Compromise agreements need to be carefully drafted and must relate to a particular complaint of the employee or specific proceedings. In addition, it is usual to include warranties to be given by the employee.

The recent Court of Appeal decision in Collidge v Freeport (June 2008) demonstrates the importance of ensuring that any payment to be made by an employer is linked to the employee’s warranty.

Mr Collidge was a director of Freeport. There were concerns over potential improper expenses claims and it was proposed by the Board that he be suspended whilst the allegations were investigated. Mr Collidge said that he would resign. The parties entered into a compromise agreement which provided that Freeport would pay Mr Collidge £445,000 and he would give a warranty that there was no misconduct on his part which would have entitled Freeport to terminate his employment summarily.

The compromise agreement was signed, but before the payment was made, Freeport discovered a number of matters which suggested Mr Collidge was in breach of the warranty and it did not make the payment.

Mr Collidge issued proceedings in the High Court and argued that the warranty was not a pre-condition to the enforceability of the compromise agreement and Freeport should make the payment. The High Court disagreed and held that Freeport’s obligation to make the payment was directly linked to the warranty. Accordingly, Freeport did not have to make the payment if the facts set out in the warranty were untrue. Mr Collidge’s subsequent appeal to the Court of Appeal was unsuccessful.