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Compromise Agreements take Centre-Stage in the High Court

This week we look at a recent High Court case arising from an employee's allegation that he was negligently advised by his solicitor when signing a compromise or severance agreement. Our Adrian Twomey highlights the key points to note in the case of Vaughan v English and Leahy, [2023] IEHC 281.

Mr. Donal Vaughan was employed by Dublin Airport Authority (DAA) as a Business Intelligence Manager from 7 August 2001 until 5 October 2007. His employment contract provided, at clause 12 of the document, that he would be entitled to a lump sum of three times his annual salary if he had to retire prematurely due to ill-health or an injury that rendered him permanently incapable of performing his duties.

After three years at the DAA, Mr. Vaughan went out sick in December 2004. His medical certificates referred to anxiety and depression. It appears that he also received treatment for alcohol abuse. Almost two years later, in November 2006, Mr. Vaughan discussed a possible exit from his employment with a senior executive of the DAA. He was subsequently sent a "request for voluntary severance" document, offered a severance payment of €25,000 and told that he should take his own independent legal advice on same.

Mr. Vaughan engaged the services of English Leahy Solicitors who advised and represented him in negotiations with the DAA's solicitors. The eventual upshot was an agreement that the DAA would:

  • pay Mr. Vaughan a severance sum of €55,000;

  • waive the arrears on a loan (€13,941) that the employer had given to the employee; and

  • make a contribution to his legal fees in the amount of €1,500.

DAA made no admission of liability. The payments were expressed in the agreement as being "paid by way of severance on grounds of ill health". As noted above, Mr. Vaughan's employment ended on 5 October 2007.

Based on the information set out in the judgment of the High Court, it is hard to avoid forming the opinion that Mr. Vaughan's solicitors did a good job at the time and charged him a relatively modest fee for doing so. However, somewhat surprisingly, the story does not end there.

Mr. Vaughan raised no issues or concerns in relation to the agreement for some years after the deal was concluded. In February 2013, however, he issued proceedings against his solicitors for alleged professional negligence. He claimed that they had not advised him properly about clause 12 of his contract of employment at the time and he sought an award of €323,221, being the alleged difference between three years' salary and the severance payment received. In their Defence, the solicitors alleged that Mr. Vaughan had wanted to move to Tipperary at the time and they were negotiating his exit package against that background. They stated that clause 12 was discussed with him but that there was no evidence of a permanent illness or disability.

The claim rumbled on over the following decade. Mr. Vaughan himself died in July 2020, but his son, Mr. Diarmuid Vaughan, as administrator of the deceased's estate, effectively took over the claim. Ten years after the proceedings had commenced, and sixteen years after the severance or compromise agreement was signed, the solicitors moved to have the claim struck out on the basis of delay or want of prosecution.

In the High Court, Mr. Justice Ferriter, relying on the earlier case of Primor v Stokes Kennedy Crowley, [1996] 2 IR 459, noted that the relevant legal test for dismissing proceedings for delay was:

  1. That there has been inordinate delay on the part of the plaintiff in prosecuting the claim;

  2. That the delay is inexcusable; and

  3. That the balance of justice is in favour of dismissing the proceedings.

Having applied that test, the judge struck out the claim.

The case highlights a number of points of concern for solicitors advising employees in relation to termination, severance or compromise agreements.

In the first instance, it is relatively common to find employers offering to pay €250 (plus or inclusive of VAT) towards the cost of their employees obtaining legal advice in relation to such agreements. It makes little sense for solicitors to accept such small sums in return for the risk of finding themselves embroiled in litigation like Mr. Vaughan's claim many years later.

Secondly, it is hard to imagine any solicitor being able to comprehensively and adequately advise an employee about an agreement that will result in the termination of their employment without spending a meaningful amount of time reviewing documentation, speaking with their client, complying with their various legal obligations when opening a file and so on. That will inevitably warrant a more significant fee.

Finally, UK legislation on "protected conversations" and independent advisers, whilst not mirrored in Irish law, has prompted some employers to demand that employees' solicitors sign "declarations" that could give rise to claims by employers against them.

The long and the short of the matter is that agreements that involve the termination of an employee's employment are serious business. Employees need to be given adequate advice at the time. Their solicitors need to be aware that they could be sued by either the employee or, in some circumstances, the employer at a later date even if they do not make any mistakes. The volume of legal work and the risk involved mean that a meaningful fee is warranted.

Employers who require advice in relation to employment law issues or who need representation before the WRC or Labour Court can contact our Adrian Twomey.


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