The News of the World debacle and the subsequent Leveson Inquiry have raised all manner of issues about all manner of things.
But one matter that has not been talked about much so far is the issue of compromise agreements.
If you have ever dealt with a compromise agreement in relation to an employee, you will know that it is normal to include a clause requiring staff to assist their employer with any proceedings following the termination of their employment.
This clause anticipates such situations as another worker taking the employer to an Employment Tribunal and the ex-employee acting as an important witness. Employers obviously want some control over whether they can require former personnel to attend or not.
But it is also common practice to include in an indemnity in these clauses, under which the employer agrees to pay the ex-employee's reasonable costs as a result of their being involved in the proceedings.
Normally, the payment will be limited to reasonable travel and accommodation expenses, but the more senior the former staff member, the broader the category of expenses is likely to be. With very senior executives, their legal costs for a wider range of proceedings may be covered.
Such was the case with Andy Coulson, the now infamous former editor of NOTW and sometime advisor to Prime Minister, David Cameron. When Coulson left NOTW in February 2007, it was under a compromise agreement. The agreement included the following clause:
"To the extent that it is lawfully able to do so [NOTW] will pay any reasonable professional (including, without limitation, legal and accounting) costs and expenses properly incurred by [Andy Coulson] after the Termination Date which arise from him having to defend, or appear in, any administrative, regulatory, judicial or quasi-judicial proceedings as a result of his having been Editor of News of the World."
High court ruling
Shortly after his departure from the newspaper, what we now know as ‘the phone-hacking scandal’ started to come to light. A number of things happened as a result:
- Clive Goodman (the NOTW’s former royal editor) and Glen Mulcaire (a private investigator) were arrested and subsequently jailed in early 2007
- the Government launched a number of inquiries, most recently culminating in the Leveson Inquiry
- and, on 8 July 2011, Coulson was arrested on suspicion of conspiracy to unlawfully intercept communications and make unlawful payments to police officers. Coulson was bailed in October 2011 and is still on bail.
He subsequently engaged DLA Piper to represent him and, between January 2011 and August 2011, the law firm invoiced NOTW for their legal fees on the basis of the clause in the compromise agreement referred to above.
In August 2011, around six weeks after Coulson was arrested, NOTW wrote to him stating that it would stop paying his legal fees in respect of his arrest and criminal investigation. This was because, in its view, the clause in the compromise agreement did not require NOTW to reimburse costs in relation to proceedings "which relate to alleged conduct outside the scope of your contracted employment".
As a result, Coulson made an application to the High Court for a ruling on how much the clause in the compromise agreement covered and, therefore, whether NOTW was liable to pay his legal fees.
The main argument put forward by his lawyers was that the clause was easily wide enough to cover criminal proceedings against him. Furthermore, the drafting of it could not have been broader – the proceedings, as a “consequence” or “outcome” of his editorship, were clearly within the scope of the clause.
NOTW argued, on the other hand, that the purpose of the agreement was to cover the editor against the usual hazards arising out of his position, that is, investigations such as the Leveson Inquiry, libel actions against the paper and press complaints. It was not envisaged, the newspaper argued, that it should cover his own personal wrongdoings.
There were some additional arguments, but it was this first upon which the decision was effectively made.
The High Court held that Coulson had been required, as part of his contract of employment, to act lawfully in fulfilling his role as editor. This meant that it could not have been envisaged that he should be covered by the indemnity in circumstances where he had acted outside his lawful role, let alone in a scenario where he had potentially committed serious criminal acts.
As a result, the indemnity was deemed not to cover his legal fees.
Recommendations
In practice, because circumstances such as this are rare, most clauses in compromise agreements will be drafted clearly enough that this issue should not arise very often. But it is a warning that, what may seem like a minor detail at the time when an agreement is made, can become an important issue at a later date.
This means that it is crucial to ensure that all terms are drafted correctly in order to cover all potential circumstances.
Although the issue did not arise in this instance, it is also normal for compromise agreements to contain a carve-out. This means that, if an ex-employee has been guilty of anything that could constitute gross misconduct, the agreement would be void and any settlement monies would be recoverable.
In light of the Coulson case, this is an area that employers might want to consider in more detail, particularly if any prosecutions could lead to adverse PR or burdensome costs for the company.
Thomas Bourne, associate, and Karen Plumbley-Jones, practice development lawyer at law firm, Bond Pearce LLP.
