Be careful what you promise in a compromise agreement
When the owners of the News of the World concluded a compromise agreement with Andy Coulson on his exit from their
employment, they could not possibly have had any idea of what the future would hold for their business. One clause of
the agreement confirmed they would meet any legal fees Andy Coulson incurred as a result of his having been Editor of
the News of the World. In a decision handed down this week in Coulson v News Group Newspapers Limited, the Court of
Appeal has held that this commitment extends to cover his (presumably significant) legal fees in defending the criminal
allegations against him. An expensive decision for that employer, but a salutory reminder to us all of the costs which can
arise from including too broad commitments in a compromise agreement without well worded limitation.
The detail
When Andy Coulson’s employment ended he signed a compromise agreement. As you will know, concluding such an
agreement is the only way in which you can be certain that an exiting employee will be unable to bring employmentrelated claims against you such as for unfair dismissal or for unlawful discrimination. Such agreements will often include
clauses which provide comfort to you (or the employee) around issues such as references, anouncements, and assistance
with any legally or regulatory issues you subsequently face. Here, the employer agreed that it would pay Andy Coulson’s
reasonable professional fees “which arise from his having to defend, or appear in, any administrative, regulatory, judicial
or quasi-judicial proceedings as a result of his having been the Editor of the News of the World.” We don’t know anything
about what led to this being agreed, but it is often the case that employers will agree to terms in a compromise agreement
in order to get matters resolved, particularly where what is being requested may feel unlikely or low risk.
What was not in dispute in this case was that this ex-employer has already funded Andy Coulson’s personal legal fees for
being involved in the Leveson inquiry and appearing before the Select committee. However the ex-employer drew the line
at the costs incidental to criminal proceedings and arising from defending the criminal charges which have been brought
against Andy Coulson personally. They argued that these costs were not incurred as a result of his having been Editor of
the paper and someone accused of criminal wrong-doing should not be able to rely on such a provision. The Court of
Appeal has rejected these arguments and confirmed that the clause does mean that all Andy Coulson’s reasonable legal
costs associated to the criminal investigation and trial must be met by the ex-employer. In their Judgment they
particularly highlight that these allegations arise from the manner of the performance of the role of Editor (albeit
potentially criminal) and the same would be true of, for example, a lorry driver charged with dangerous driving.
What does this mean for me?
This particular indemnity is one you are unlikely to have agreed. However those leaving under agreed terms will
sometimes look for indemnities or other terms to protect themselves, particularly where they have held more senior
positions. The precise wording used in a compromise agreement is important. Broadbrush provisions agreed to achieve a
rapid deal can potentially be very expensive for your business. Negotiations to achieve an agreed exit may neccesitate
concesssions be made, but good drafting can limit the extent of such concessions without neccesarily being at all
controversial at the time.
Comment
The Government are proposing that in future there will be a standard form “Settlement Agreement” which can be used by
employers in place of carefully drafted compromise agreements. We are also aware that some employers use standard
form agreements, often in a wide-range of different circumstances. This case is an expensive illustration of the fact that
carefully drafted exceptions written into agreements can avoid you paying significant amounts for things you never
genuinely envisaged. Do take legal advice on what you are agreeing, it could be far cheaper than the costs which
otherwise result.
If this raises any issues for you or your organisation, please speak to your usual contact in the Weightmans' employment
team. You can also contact Phil Allen – Partner at Weightmans on 0161 214 0504 or [email protected]
Weightmans LLP
November 2012
This update does not attempt to provide a full analysis of those matters with which it deals and is provided for general information purposes only
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