Full and final settlement

An employee who had entered into a severance agreement – and was represented by her professional organisation during this process – was barred from claiming compensation under the Anti-Discrimination Act. That was the decision by the Western High Court in this case.

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According to established Supreme Court case law, severance agreements in full and final settlement are valid in the public sector. But how must provisions in full and final settlement be interpreted? That was the question before the Western High Court in this case.

The case concerned a job consultant employed at a municipality who for a long time had been fully or partially absent due to sickness. As a consequence of the operational strain caused by the employee’s sickness absence, the municipality decided to dismiss her. The employee's professional organisation subsequently requested consultation on the dismissal in accordance with the provisions of the applicable collective agreement.

During the consultation, the municipality and the employee’s professional organisation agreed various severance terms. This agreement specified, among other things, that the employee was relieved of her duties during the notice period, that the employee was not required to take all of her holiday during the notice period, and that the employee was offered sessions with a psychologist. According to the summary of the consultation ”there were no outstanding issues in relation to the matter after that”.

The day after the consultation, the employee signed the agreement, which had been made subject to the employee's acceptance. About two years after the consultation, however, the employee's professional organisation issued proceedings against the municipality alleging, among other things, that the dismissal was contrary to the Anti-Discrimination Act.

During the proceedings, the municipality claimed that the employee was barred from making claims under the Anti-Discrimination Act in connection with the dismissal, as the agreement made was in full and final settlement of any claims against the municipality. The issue of whether the employee could raise such a claim was listed for a separate hearing.

The employee’s professional organisation said that the wording ”there were no outstanding issues in relation to the matter after that” was unclear and could not be deemed to imply that the employee was barred from raising a claim under the Anti-Discrimination Act, since such a claim had not been discussed during the consultation. In addition, the professional organisation alleged that the agreement did not represent a reasonably balanced solution to the parties’ interests.

After the district court’s decision that the employee was not barred from claiming compensation under the Anti-Discrimination Act because of the agreement, the case ended up in the Western High Court.

High Court judgment
The High Court took into account that the provision in the collective agreement regarding consultation on termination concerned the issue of whether a dismissal can be considered reasonably justified. Following this, the High Court noted that the fairness of the employee’s dismissal had not been disputed during the consultation. The High Court further stated that the employee, as a result of the agreed terms, had been provided better rights compared to her statutory rights.

Citing the contents and background of the agreement, the High Court found that the agreement should be interpreted as being in full and final settlement of any objections or claims arising out of the termination of the employment. Consequently, the employee was barred from claiming compensation under the Anti-Discrimination Act based on the termination.

Further, since both the employee and her professional organisation had been aware of the circumstances surrounding the employee’s illness, which formed the basis of the claim pursuant to the Anti-Discrimination Act, the High Court found no basis for setting aside the agreement under section 36 of the Contracts Act. The High Court therefore found in favour of the municipality.

Norrbom Vinding notes

  • that the judgment confirms that when a severance agreement contains a provision in full and final settlement, settling any possible claims between the employee and employer, the provision must be interpreted according to its wording; and
  • that this also applies in the situations where claims pursuant to protective mandatory legislation were not discussed in connection with the conclusion of the severance agreement; to which must be added
  • that a provision in full and final settlement cannot in itself form the basis of objections underpinned by contract law points of view; and
  • that the potential setting aside of a severance agreement therefore requires the occurrence of special circumstances, such as fraud.

Norrbom Vinding represented the municipality in the case. 

 

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