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Work Matters: Settlement agreements and future claims

The EAT in Bathgate v Technip UK Ltd and others has confirmed that unknown future statutory claims cannot be validly settled via a settlement agreement. In other words, it is only possible to waive statutory employment claims where an actual complaint exists (or there are known circumstances that may give rise to one).

The law

A settlement agreement is a legally binding agreement between an employee and their employer under the terms of which an employee waives their rights to pursue court or tribunal claims against the employer, usually in return for a payment of compensation by the employer. These agreements can be used during employment to bring an end to disputes which could result in a claim (for example, discrimination) but more commonly the parties agree that the employee’s employment will terminate as a consequence of signing a settlement agreement.

To ensure the employee’s waiver of their statutory claims (i.e. those set out in legislation) is valid, the settlement agreement must comply with certain rules. These requirements are designed to ensure employees do not sign away important legal rights without understanding the consequences of their actions. These rules are set out in the legislation that governs the relevant legal claim. Generally, the settlement agreement must be in writing and the employee must have received independent legal advice on its terms. It must also relate to the ‘particular’ complaint or proceedings that are being settled. If these provisions are not met, the waiver will not be legally binding - meaning the employee could bring statutory tribunal claims, regardless of entering the agreement.

Given the need for an agreement to reference ‘particular’ statutory complaints or proceedings for these to be validly waived, agreements are often widely drafted to cover all possible claims. However, there has been significant debate in courts and tribunals over the years as to whether this approach is effective - particularly in relation to unknown future claims.

The Employment Appeal Tribunal (EAT) has now helpfully clarified the position.

Facts

Mr Bathgate, the employee, had been employed by Technip Singapore PTE Limited for approximately 20 years when his employment was terminated by voluntary redundancy under the terms of a settlement agreement. His compensation included an enhanced redundancy payment and also an enhanced pension payment, which was referred to as the ‘Additional Payment’.

The Additional Payment was governed by a collective agreement, the terms of which provided that the Additional Payment would only be paid to employees under the age of 61. The employee was 61 when he signed the settlement agreement but was nevertheless under the impression that he would receive the Additional Payment. However, after the employee had signed the agreement, and just before he was due to receive the payment, the employer said he would not receive it due to his age.

The employee brought an age discrimination claim for the failure to pay him the Additional Payment. The employer argued that the employee could not bring an age discrimination claim because he had agreed to waive future discrimination claims under the terms of his settlement agreement.

Employment Tribunal (ET) decision

The ET agreed with the employer. It said that the settlement agreement covered future age discrimination and therefore prevented the employee from bringing his claim.

The ET agreed that future age discrimination claims were covered by the settlement agreement’s waiver of ‘all claims…of whatever nature (whether past, present or future..)’ which arose out of or in connection with the employee’s employment - including those claims of which the employee was unaware. Age discrimination was included in the ‘long’ list of legislation to which this waiver related.

The employee appealed.

EAT decision

The EAT allowed the employee’s appeal.

The EAT said that the employee had not waived his right to bring his age discrimination claim. This is because his claim was in respect of alleged discrimination which occurred after he had signed the settlement agreement and he could not have known about or contemplated this complaint when he did so. This unknown future claim could not fall within the statutory meaning of a ‘particular complaint’ because parliament’s intention was that settlement agreements should only settle particular complaints that have already arisen.

Fladgate comment

This case clarifies that unknown future statutory claims cannot be validly settled via a settlement agreement. In other words, it is only possible to waive statutory employment claims where an actual complaint exists (or there are circumstances known to the employee that may give rise to such a complaint).

This is an unsettling decision for employers as it means that, when entering into a settlement agreement with an employee, some uncertainty will remain as to whether that brings an end to the matter. If further issues arise or unanticipated matters come to light after the settlement agreement is signed, the employee will remain free to bring statutory claims arising out of these circumstances.

In most cases the risk of future unknown claims arising will be low, and this risk can be mitigated by careful drafting in the settlement agreement. However, employers should bear this in mind when deciding whether to enter into a settlement agreement, particularly, if they are doing so well in advance of the termination date.

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