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‘Entire agreement’ clause in employment contract saves employer

Employers should ensure their employment contracts state that they constitute the entire agreement between the parties, so that employees cannot bring legal claims if promises made during the recruitment process are not kept, a recent decision makes clear.

A new bank employee was told during the recruitment process that his discretionary bonus would be between 5 and 10 per cent. However, his letter of appointment:

• Made no mention of potential percentages or other sums payable by way of discretionary bonus

• Contained an ‘entire agreement’ clause saying the terms in the letter superseded any representations or promises made to him previously

For two years he was awarded a discretionary bonus of 1 per cent. He then learned that colleagues had been awarded 8 per cent and 11 per cent. He claimed his employer had breached his terms of employment by:

• Paying him only a 1 per cent bonus when he had been led to believe he would get more

• Failing to treat him comparably with other employees when awarding discretionary bonuses

The High Court ruled that the entire agreement clause did exactly what it said, and superseded any representations made during the employee’s recruitment process.

It also found that it was reasonable for the bonuses awarded to his colleagues to be higher as they had been employed for longer, and higher bonuses were an incentive not to look for another job.

Operative date

• Now

Recommendation

• Employers should ensure:

o No promises or representations are made when recruiting (or interviewing for promotion) unless they will be kept later

o Contracts of employment contain ‘entire agreement’ clauses saying the contract constitutes the entire agreement between the parties, and that the employee should not rely on any promises or representations previously made

o They can justify apparent inconsistencies between employees when deciding on discretionary bonuses

Case law: Paturel v DB Services (UK) Ltd [2015] EWHC 3659

21 March 2016

 Jonathan Waters is the founder of Helix Law. Before qualifying as a Solicitor he worked in industry and in investment banking for over a decade. He was also the Partner in charge of Commercial Litigation, Employment Law and Property Litigation at Stephen Rimmer LLP. Jonathan has wide experience of helping and advising businesses to avoid or to deal with commercial disputes and in particular construction disputes.

This article is written to raise awareness of the issues it discusses and it may not be updated after it is first written, even if the law changes. It is not intended to be legal advice and cannot be relied on as such. Helix Law is not responsible or liable for any action taken or not taken as a result of  this article. If you think the matters set out affect you and you wish to apply them to your particular circumstances then we are happy to give you free initial telephone advice. 

Contact Helix Law on 01273 761 990 or email: [email protected]