Weekly Employment Update - 11th January 2012

Welcome to Ashfords' Weekly Employment Update, where each week we consider recent developments in Employment and HR issues. This week we consider a recent High Court decision that establishes an employer's obligation to pay legal fees for compromise agreements arises only in respect of lawful activities flowing from an employee's employment.

Mr. Coulson, the former Editor of the News in the World, had a compromise agreement with his employer dealing with the termination of his employment.  The agreement had an indemnity clause that provided that his employer would pay any reasonable professional costs and expenses properly incurred by Mr. Coulson after the termination of his employment which arose from him having to defend, or appear in, any administrative, regulatory, judicial or quasi-judicial proceedings as a result of his having been employed as the Editor.

Mr. Coulson was arrested for criminal allegations of phone hacking and of bribing police officers during his time as Editor. He was not charged, but was given bail.  Mr. Coulson sought a declaration that the indemnity in the compromise agreement obliged the News of the World to pay for his legal expenses in defending these proceedings.

The High Court held that it could not have been intended that activity outside the scope of the Mr. Coulson's lawful responsibilities as Editor would be covered by the indemnity, particularly where the activity involved serious criminal activities. Furthermore, although "judicial proceedings" did not exclude criminal proceedings, the intention of the clause was to protect Mr. Coulson from legal professional expenses arising from the "ordinary occupational hazards" as Editor: it did not cover criminal allegations made against Mr. Coulson personally.

The wording of this indemnity clause is standard in most compromise agreements and it is now established that it will only cover professional fees and expenses arising from lawful activities flowing from an employee's employment.

Coulson v Newsgroup Newspapers Limited

Ashfords LLP is Authorised and Regulated by the Solicitors Regulation Authority. The information in this note is intended to be general information about English law only and not comprehensive. It is not to be relied on as legal advice nor as an alternative to taking professional advice relating to specific circumstances.