Warranties in Compromise Agreements

In Collidge v Freeport Plc [2008] IRLR 697, the Court of Appeal held that an employer is not obliged to make a payment due under a severance agreement if an employee is in breach of a warranty he has given in that agreement.

Mr Collidge, former Chief Executive of Freeport Plc was suspended, pending investigation into various allegations of dishonesty. He denied the allegations and agreed a severance agreement (known in the United Kingdom as a "compromise agreement") with the company. Under the terms of that agreement, he agreed that he would resign and receive £445,680 conditional on his compliance with a number of warranties. The compromise agreement included a standard warranty from Mr Collidge which stipulated the following: "You warrant as a strict condition of this agreement that as at the date hereof … there are no circumstances of which you are aware or of which you ought reasonably to be aware which would constitute a repudiatory breach on your part of your contract of employment which would entitle or have entitled the company to terminate your employment without notice."

Freeport Plc subsequently discovered, amongst other things, that Mr Collidge had submitted fraudulent expense claims. The Court of Appeal held that the company's obligation to pay was conditional on the statements contained in the warranty being true. Freeport Plc had sufficient evidence of gross misconduct which would have entitled it to dismiss Mr Collidge summarily and as a result, it was not obliged to pay him the settlement monies.