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Valid forfeiture of a benefit attained through a compromise agreement (now settlement agreements)

The difficulties of dealing with exiting senior management are the same in all industries. Existing employees, particularly those who have the potential their former employer’s damage, very easily forget their duty of fidelity. Many employers protect their interests by agreeing compromise agreements (from 29 July 2013 compromise agreements have been renamed as settlement agreements). However, does an employee forfeit their agreed financial benefit or payment if they breach their executed compromise agreement? 

The High Court recently dealt with this question in the case of Mr Imam- Sadeque v Bluebay Asset Management (Services) Ltd (BlueBay). 

Background 

The Claimant, Mr Imam-Sadeque, commenced employment with BlueBay, an asset management company, in 2004 and by 2010 he had been promoted to the position of Head of Sales in the UK, Middle East and Australia. His contractual annual salary was £100,000 plus a discretionary company bonus scheme. 

In July 2011 Mr Imam-Sadeque, as a result of being passed over for promotion, decided he had ‘hit a brick wall’ with his employment at BlueBay. He started to consider his options and very quickly secured a post to join a competitor start up, Goldbridge Capital Partners LLP (GCP). 

However, under Mr Imam-Sadeque’s contract if he resigned from his post he would forfeit receipt of a bonus in the sum of £1.7million from one of his funds which would vest in January and March 2012 (‘the 2012 Fund Units’), unless he was classified as a ‘Good Leaver’. He therefore wrote to his employers expressing a desire to part ways amicably. 

A compromise agreement was agreed between the parties whereby Mr Imam-Sadeque would provide a smooth handover anticipated until mid-October 2011 and thereafter be placed on garden leave until December 2011. The company informed Mr Imam-Sadeque that upon termination of his contract he would be released from his post termination restrictions, except that of soliciting any of their employees. Further providing that he did not breach the compromise agreement he would be termed as a ‘Good Leaver’ and would retain his right to the 2012 Fund Units. He would forfeit any bonuses on all other funds. 

On Monday 3 October 2011 there was a press release launching GCP which indicated that Mr Imam-Sadeque was part of their team. 

As a result BlueBay alleged that Mr Imam-Sadeque was in breach of both his employment contract and compromise agreement because a) he had assisted in setting up GCP as a rival business and b) he recruited another Bluebay employee to work with him. 

In December 2011, Mr Imam–Sadeque was subject to disciplinary proceedings and as a result his Good Leaver status was removed. 

Mr Imam-Sadeque brought proceedings in the High Court arguing that he remained entitled to the 2012 Fund Units because he had not breached his employment contract or compromise agreement. In the alternative he argued that the forfeiture would amount to being a penalty and unenforceable.  

The High Court decision 

The High Court held that BlueBay was entitled to forfeit the 2012 Fund Units because of Mr Imam-Sadeque’s repudiatory breach of the compromise agreement which included (a) assisting GCP to set up and (b) soliciting a former BlueBay employee. 

The court considered the penalties doctrines which had been argued and concluded that the agreement conferred a conditional benefit which simply never accrued because the employee failed to fulfil the condition, namely performance of the agreement on his part. Furthermore this was an agreement struck between sophisticated parties of comparable bargaining power.

Conclusion

This case illustrates the importance of employers ensuring that negotiated financial benefits or payments in compromise agreements are conditional on compliance with the obligations set out within them.   

If you need advice in relation to a compromise agreement please contact a member of our team on 01133 50 40 30 or at hello@scesolicitors.co.uk for a free initial consultation.


Samira Cakali

Solicitor Advocate LLB (Hons), Higher Rights (Civil) at SCE Solicitors
Samira Cakali is a pragmatic and approachable solicitor advocate with extensive contentious and non-contentious experience in the fields of employment law as well as civil litigation, within a range of commercial businesses from SME’s to multinationals as well as senior executives.
Samira Cakali

Samira Cakali is a pragmatic and approachable solicitor advocate with extensive contentious and non-contentious experience in the fields of employment law as well as civil litigation, within a range of commercial businesses from SME’s to multinationals as well as senior executives.

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