Employment TribunalAll the smart money is on 2021 to see an increased number of grievances and Employment Tribunal claims as the pandemic support regime winds down.  Therefore this is probably a good moment to look at the practical lessons to be taken from Cole – v – Elders Voice in the Employment Appeal Tribunal last month in relation to the possible unwinding of the settlements of those claims which you might reach.

In the end, and despite the procedural bits and bobs attached, both an ACAS COT3 and a statutory settlement agreement are just contracts.  Under English law, a contract can be made void if there has been any misrepresentation on the way into it, i.e. an untrue statement of law or fact made by A to B which induces B to enter the contract with A, thereby causing B loss.  It does not much matter for our purposes whether that misstatement of fact or law is made innocently, negligently or fraudulently – in any such case, B can seek damages or rescission, where the contract is set aside and the parties are put back into the position they were in before it was made.

Gloria Cole was employed by Sanctuary Housing Association and was then transferred to Elders Voice under TUPE.  Within a matter of weeks, EV made her redundant and she sued it for unfair dismissal.  In seeking to reach an agreement with her, the ET found, EV made a series of misrepresentations to Cole about her continuing ability to have a pop at Sanctuary if she wished.  On that basis, she signed the COT3 with EV.  However, when she then pursued the claim against Sanctuary it ran into the obvious point that any liabilities and obligations it had had towards Cole had automatically transferred under TUPE to EV, the body with which she had just entered a full and final settlement.  Cole asked the Tribunal to reopen that settlement on the basis that if she had known that she had no viable claim against Sanctuary then she would not have taken the EV deal.  The Tribunal declined to assist, regarding itself as bound by the usual finality of a COT3 agreement.

On appeal, the EAT found that EV had misrepresented that position to Cole. This misrepresentation was compounded by EV doing so through solicitors who should have known better, and it was no defence for EV to say that with reasonable enquiries Cole or her representative (an individual who held himself out as a barrister but due to his unnecessarily numerous encounters with the Bar Standards Board, actually wasn’t) could have seen that argument coming.  Perhaps the most striking part of the EAT’s conclusion, however, was that in her arguments it had allowed Cole to refer the EAT to the without prejudice correspondence with EV in which those misrepresentations had been made.

Therefore we arrive at a position where a COT3 or settlement agreement can be set aside for misrepresentation, and the Employment Tribunal is entitled to look at the preceding without prejudice correspondence it would never normally see in order to decide if anything said there counts as such.

Lessons for employers

  • A misrepresentation has to lead to the making of the contract.  That does not mean that it has to be anything objectively fundamental to the deal, just that it is important to the employee.  If it is clear that the employee would have signed up anyway because it was a very good deal or he was under particular financial pressure and so had no real choice, there will not be the necessary element of inducement and/or loss to constitute a misrepresentation.
  • Although in principle a statutory settlement agreement is equally just a contract, the requirement for the employee to be independently advised is designed expressly to limit the likelihood of employees being induced into such agreements by misstatements of the law.  However, advising solicitors are not there to discern non-obvious misstatements of fact, so it remains entirely possible to attack a statutory settlement agreement on the grounds of a misrepresentation also.
  • Misrepresentation is not just a tool for employees.  It is equally possible for an employer to rely upon it.  Take the case where the employee confirms earnestly but falsely in negotiations that, no, he does not have another job lined up and no, he has not committed any as yet undiscovered act of gross misconduct, and yes, he has given back all his copies of the client database, etc.  If the employer can show that if it had known the true position it would not have agreed to pay the ex-employee as much severance (or perhaps any or at all), it may seek to argue that the settlement should be voided.  However, since that would also reopen the employee’s potential claims against it, most employers prefer to incorporate those commitments into the agreement and then rely on an ordinary breach of contract claim.
  • Misrepresentation will not generally include the ordinary understatement and hyperbole of settlement negotiations, whoever is doing the posturing. The statements that “Our client does not accept that yours has a strong case” or “Our client has no expectation of re-employment in the near future” may both have a more or less elastic relationship with the truth but neither would be close to grounds to vitiate the agreement. By contrast, “Since my dismissal I have not found alternative employment” is clear enough to be a representation and so, if untrue, quite specific enough to allow the employer to look at rescission if it wished. That will be true whether the statement is made in correspondence, in a without prejudice meeting or (at least in principle) through a mediation.
  • Something which is true at the time it was said does not become a misrepresentation if later events then make it untrue.  For example, if the employer states truthfully in negotiation that it has no intention to replace the employee (and hence that he is properly redundant and so the deal offered is a good one), that will not invalidate the resulting settlement agreement/COT3 if due to new circumstances or even a genuine re-think, it then decides that it will.  The key for the employer will be to show the intervening event or thought process, with the obvious caveat being that the closer in time it is to the original representation or the more obvious the thought process, the less convincing that position will be. This issue has been a regular question for clients considering how they will re-build post pandemic – having perhaps just made a large number of redundancies, can they now start recruiting without exposure to claims from those just paid off? Yes, provided that when the redundancies were made, there was no specific intention to start hiring again.

It has long been the position that you can’t use without prejudice correspondence as a cover for unlawful discrimination or victimisation.  Cole confirms that it won’t protect against misrepresentations either.  Of course, the misrepresentation argument only works once a contract has been entered into so this case cannot be used to get behind a without prejudice negotiation which is still ongoing.  All the same, if you don’t want your off-the-record correspondence on the record, it is now more than ever important not to make in it any assertions of fact or law which you would not be content to defend in open Tribunal.