Tip of the Week: Settlement agreements – employers, avoid this critical mistake!
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In the Workplace Relations Commission ("WRC") case of ADJ-00056614, the issue of informed consent in the context of a settlement agreement arose. In this case, the complainant had signed a compromise agreement but one month later brought a constructive dismissal claim. She argued that she had not been given the opportunity to obtain professional legal advice before signing.
The Adjudication Officer firstly addressed the preliminary issue of whether the compromise agreement barred the complaint.
Here are the key facts on that:
- The compromise agreement explicitly referenced the Unfair Dismissals Act, confirming the complainant would not pursue claims under it (which she later did).
- Paragraph 9 of the agreement stated:
‘The employee hereby confirms that she has had the opportunity of taking legal advice on the provisions of this agreement and that she understands the effect and the implications of this agreement, and that she is signing this agreement voluntarily and without any duress whatsoever.’
- However, the complainant’s uncontested evidence was that she was not shown the entire settlement agreement, just the signature page, and that she was not allowed to retain a copy of it.
The WRC held that, as a matter of uncontroverted fact, the complainant was not given the opportunity to take legal advice on the agreement. The Adjudicator emphasised that “this requirement for informed consent is a critical one.” He also went on to say that if it can be shown that a complainant has waived their right to do so - that will be a different matter, however, it is not what happened in this case.
On that basis, the Adjudicator ruled that the complainant was not prevented from pursuing her claim and he proceeded to hear the substantive constructive dismissal complaint.
Although the constructive dismissal claim ultimately failed due to the complainant not exhausting the internal grievance procedure, the WRC’s decision on the settlement agreement is a cautionary tale. Another employer in similar circumstances could face significant legal and financial exposure, especially if a goodwill payment (as part of the settlement) has already been made to the complainant.
Employers should always seek legal advice before offering or entering into a settlement agreement with an employee. If the agreement is flawed - particularly around informed consent - the consequences for employers can be severe and costly.
The above is for general guidance only and is not intended as professional advice. Advice should always be taken before acting on any of the issues identified.
Please contact Barry Walsh, Paul Bruun-Nielsen or Greta Siskauskaite should you require specific legal advice on these areas or indeed any employment law issues.
Link to decision: ADJ-00056614 - Workplace Relations Commission