Where an employer enters into a compromise agreement with a departing employee in full and final settlement, consideration should be given to whether or not the agreement is also intended to settle any potential claims that the departing employee may have against trustees of the company pension scheme. A recent High Court decision has highlighted that a compromise agreement with the following standard wording: "The Employee will accept the Severance Payment and Continuing Benefits in full and final settlement of all his claims if any against the Company and any director officer or employee of the Company arising out of his employment by the Company and the termination of it including without limitation any of the following…" was not effective to compromise claims against the pension trustees. The High Court held that whilst the clause was effective to extinguish claims against the employer; it did not extinguish a claim against the pension trustees even though that claim could oblige the employer to make good the cost of meeting that claim eg to fund the added cost to the pension fund. Blakemore& Son Ltd & Trustees of the Blakemore& Son Ltd Staff Retirement Scheme v Machin & anr
However, the compromise agreement in this case was entered into in 1999 before the Contracts (Rights of Third Parties) Act 1999 ("the 1999 Act") came into force which radically reformed the privity of contract rule, giving third parties a right to enforce a term of a contract if the contract expressly provides that he may or the term purports to confer a benefit on him, unless on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party. Consideration should be given to whether the waiver given in the compromise agreement is intended to operate for the benefit of any third parties. It will often be the case that the agreement is drafted to include a waiver of claims against other group companies but there may also be instances where it is appropriate to seek a waiver of claims against trustees. If the 1999 Act is generally excluded in the agreement, consider stating expressly in the contract which clauses do confer third party rights e.g. "With the exception of the right of Group Companies [or Affiliates or Trustees of the Company Pension Scheme] to enforce the terms of clauses [ ] of this Agreement, no term of this Agreement is enforceable under the Contracts (Rights of Third Parties) Act 1999 by a person who is not a party to this Agreement".