Settlement agreements are a very common way of drawing a line under disputes and are often used when people leave their employment.
However, a recent case has now thrown into doubt the extent that employers can benefit from a full waiver of claims.
In the case of Bathgate v Technip UK Ltd (2022), the Employment Appeal Tribunal (EAT) has held that unknown future claims cannot be settled by a settlement agreement.
Background
Mr Bathgate had accepted voluntary redundancy. He entered into a settlement agreement, which provided that he would receive various payments and benefits, including an additional payment for redundancy.
However, under the terms of the relevant collective agreement which applied to the additional payment for redundancy, employees aged 61 and over were not entitled to receive a payment. Mr Bathgate, who was 61 years old, was not aware of the cut-off age at the time of signing the settlement agreement and did not therefore know that he would not be entitled to the additional payment.
Mr Bathgate brought a claim in the Employment Tribunal, claiming age discrimination in relation to the “arbitrary” cut off point. However, the Tribunal found that he had waived his claim under the settlement agreement. He proceeded to the Employment Appeal Tribunal claiming that he was unaware of the age discriminatory provisions at the time of signing the settlement agreement and the fact that a decision would be made in the future that he would not be eligible for payment.
The EAT decision
The EAT found that the settlement agreement had not settled the age discrimination claim, as a settlement agreement cannot settle unknown future claims. At the time it was entered into, the employee did not know that he would not be paid, and no such decision had yet been made.
Section 147 of the Equality Act 2010 lays down certain conditions that must be met to constitute a valid waiver of employment claims, including the fact that it must be in writing and the employee must have received independent legal advice on its terms. Under Section 147(1)(b) of the Act, it is also essential that the agreement relates to a “particular complaint”. Mr Bathgate argued that the settlement agreement could not apply to this claim as the complaint was unknown when he signed.
The EAT judge, Lord Summers, decided: “The words “the particular complaint” suggest that Parliament anticipated the existence of an actual complaint or circumstances where the grounds for a complaint existed. I do not consider that the words “the particular complaint” are apt to describe a potential future complaint." He continued, “I accept that this conclusion may be inconvenient where there is a mutual desire to avoid future claims and a wish to end the employment relationship permanently. Nevertheless, it seems to me that Parliament did not consider that a settlement of the sort seen in this case was desirable and legislated to prevent them.”
The EAT concluded that a Claimant must be aware of the claim or the cause of action relating to the claim prior to the agreement being entered into in order to waive their right to bring such a claim in the Employment Tribunal.
Outcome
Previous legal authority has been that a settlement agreement could potentially settle future claims that have not yet arisen, provided the parties' intentions, as reflected in the wording of the agreement, were sufficiently clear. The EAT has moved away from this interpretation.
The situation remains that it is possible to waive existing and unknown future contractual claims, provided clear and unambiguous wording is used. However, with statutory claims (for example unfair dismissal and discrimination claims), the position is different. There is a clear statutory requirement for a qualifying settlement agreement to relate to the “particular complaint” and this requires an actual complaint to exist or circumstances where the grounds for a complaint exist.
There remains uncertainty around what “circumstances where the grounds for complaint exist” might cover. For example, had Mr Bathgate known of the age limit, would the decision have been different?
Impact
It remains clear that the standard “catch all” list of claims that is used in most settlement agreements, does not meet the conditions for a qualifying settlement agreement. Therefore, the wording of the agreement should identify the particular complaints that the parties intend to settle. Careful thought needs to be given to whether these claims have yet arisen or whether there could be circumstances where it could be said that grounds for the complaint exist.
However, employers will wish to achieve as much finality as possible when they enter into settlement agreements, and the possibility that an employee may enter into an agreement and then still be able to pursue a legal claim will be of concern. The timing of entering into the agreement is an important point to consider. Many deals are done on the basis that the employee will serve all or part of their notice period after the agreement is entered into. In such situations, employers should consider a requirement for the departing employee to enter into a “re-affirmation” certificate as a condition of receiving payment. Another approach is to include certain warranties from a departing employee and a potential claw back of payment in the event any claims are brought, but being aware that careful drafting is needed to minimise the risk that this may constitute an unlawful penalty and therefore be unenforceable.
Contact us
Employers will wish to ensure, so far as possible, that settlement agreements are watertight.
It is now more important than ever to ensure that settlement agreements are drafted correctly, and that legal advice is sought to ensure the employer benefits from as much protection as possible.
At Brabners we have extensive experience in supporting employers who are dealing with employment disputes.
Our team of experienced employment lawyers are experts in what they do and have a successful track record in resolving disputes, and negotiating severance packages and settlements.
Please contact Lee Jefcott or your usual contact in the Employment Team if you would like to find out more about how we can help you.
This article contains a general overview of information only. It does not constitute, and should not be relied upon, as legal advice. You should consult a suitably qualified lawyer on any specific legal problem or matter
