Cases and Comment: Caruana -v- Fruit of the Loom International Ltd [2011 IEHC 130]
This is an interesting case in that it concerns the validity of compromise agreements and marks a potential major step forward in favour of the employer, for a change, when it comes to disputes of employment rights. The use of compromise agreements, also known as severance or settlement agreements, has grown exponentially over the last number of years and many employers view them as an easy way of terminating the employment of a troublesome employee with minimal risk. Essentially, a compromise agreement may arise in two guises:
- The first one involves the termination of an employee’s contract of employment on the basis that the employer will pay the employee a settlements fee and the employee in return vouches that he will not take any claims against the employer.
- Secondly, compromise agreements may be agreed upon where the employee has already taken a claim against the employer (as was the situation in the Caruana case) and a compromise agreement is reached whereby a settlement fee is paid in full and final settlement of any claims the employee has taken or may take in future.
These agreements are, therefore, mutually beneficial in that the employer may terminate the contract of employment and avoid litigation and its associated costs (such as negative publicity) and the employee can avail of a settlement payment made out in a tax efficient manner with the lack of litigation permitting them to get on with their careers with minimal stress.
This High Court case concerned a claim by Mr Caruana where he sought damages against Fruit of the Loom, his ex-employer, for personal injury, loss and damage alleged to have been suffered by him as a result of the negligence, breach of contract, and, breach of duty of care by Fruit of the Loom in its dealings with him during the course of his employment. Mr Caruana alleged that the claim arose due to stress at work arising from the failure of the company to maintain a relationship of trust and confidence with him. He claimed that this stress was caused by a number of factors including verbal abuse, unfair questioning, being undermined at work, being accused of incompetence and being subject to unfair treatment on the staff roster through shift work and overtime.
Prior to this matter making it to the High Court, Mr Caruana had taken a claim under the Unfair Dismissals Act 1977-2001, claiming that his selection for redundancy was unfair. At this time a settlement agreement was agreed upon and signed by all the parties concerned and their legal representatives. At the time of the agreement Mr Caruana had already lodged four personal injury claims against Fruit of the Loom. As it transpired, one of these claims had not yet been communicated to Fruit of the Loom and, as such, they were only aware of three claims, one of which was out of time. When the compromise was drafted it was stated that it would be in full and final settlement of all claims except for “two outstanding employer liability claims for personal injuries against [the defendant].”
The central issue that arose before the High Court concerned which two claims were excluded from the compromise agreement. Mr Caruana had informed his representative that the two excluded claims were his bullying and harassment claim (the High Court action) and a personal injury claim arising out of a fork lift accident. However, this had never been explicitly communicated or agreed upon between the parties and Fruit of the Loom had in fact been of the understanding that two different claims were excluded as at that stage they were not even aware the High Court bullying and harassment action existed. When this matter proceeded to the High Court, Fruit of the Loom claimed that Caruana could not take such a claim due to the compromise agreement (i.e. he was estopped from taking the action).
The Supreme Court in Macauley -v- Minister for Posts and Telegraphs [1966] IR 345 recognised that every individual has a right of access to the courts by virtue of Article 40.3 of the Irish Constitution. As a result, courts and tribunals are very sceptical of compromise agreements as those agreements by their very nature restrict one’s access to the courts. As a result they will scrutinise any compromise agreement very closely and unless it meets certain criteria they will strike the agreement down and allow the employee to make their claim. This list of criteria is quite lengthy so for this article we will only refer to one, namely that the agreement should not simply state that it is in full and final settlement of all existing or potential claims; the specific legislation under which an employee cannot take a claim ought to be clearly explained and listed in the agreement itself [as per Fowler & Bergin -v- Hardware Distributors Dublin Limited (UD872;873/1994)].
It is important to note that in the Fruit of the Loom compromise agreement, they did not specify the legislation as normally required and simply stated that the agreement was “in full and final settlement of all claims of every nature, type and kind whatsoever and howsoever arising in respect of and from both my former employment and the termination thereof by reason of redundancy”.
Having listened to the submissions from the employee, employer and their representatives, the High Court determined that Mr Caruana had been aware that neither Fruit of the Loom nor their representatives were aware that this bullying and harassment claim had been taken. He also concluded that Mr Caruana would have been aware that Fruit of the Loom had no knowledge of this claim at the time the compromise agreement was drafted. As a result, the High court placed the blame for this misunderstanding entirely on Mr Caruana as he had been “factually inaccurate and at the very best disingenuous and reckless”. The Court also referred to the fact that Mr Caruana was clearly well versed in areas of employment law and his rights and noted that he “had successfully challenged three disciplinary decisions against him by the defendant before a Rights Commissioner… Though a general operative with the defendant the plaintiff was a SIPTU shop steward and the history of his employment and dealings with the defendant demonstrates that he was possessed of an alert and resourceful mind.” The High Court also noted that Mr Caruana had received independent legal advice in respect of the agreement and had been given time to peruse its contents prior to signing it.
The Court concluded that as Mr Caruana had known that Fruit of the Loom were unaware of this bullying and harassment claim he was prevented (or estopped) from pursuing that claim by virtue of the compromise agreement. It was quite clear that he understood the ramifications of the agreement and he was also aware that Fruit of the Loom believed that two different personal injuries claims would be excluded under the agreement. Thus the High Court departed from the normal rule that you must explicit list the claims that are to be excluded and also what future claims are to be excluded by listing out the legislation that an employee cannot claim under. Despite the absence of explicit legislation and claims, Mr Caruana was prevented from taking his bullying and harassment claim due to his reckless behaviour in confirming the details of the compromise agreement.
Employers should seek advice from Peninsula Business Services when if they have any questions in relation to compromise agreements. Please phone the 24 Hour Advice Service on 01 8555050 and one of our experienced advisors will be happy to assist.
