Settlement agreements cannot settle future employment claims that have not arisen
09 November 2022
A settlement agreement cannot sign away claims which have not arisen at the date of the agreement, according to this latest Employment Appeal Tribunal decision.
The EAT also made wider comments about the scope of settlement agreements and the practice of listing a series of claims to be settled. This article looks at the EAT’s decision, what it means for settlement agreements more generally, and practical options for achieving clean breaks.
Background to settlement agreements and the need to be specific
Statutory employment claims such as unfair dismissal, discrimination and deductions from wages cannot be waived, contracted out of, or settled, except through Acas conciliation or a valid settlement agreement.
For a settlement agreement to be valid, it must (among other things) relate to the “particular” complaint. There is a long-standing tension between the desire of the employer (and often both parties) to achieve a full and final settlement of all claims and the need for settlement agreements to focus on particular claims. Previous caselaw has made clear that blanket waivers (e.g. “this agreement is in full and final settlement of all claims”) are insufficient. Claims must be clearly identified if they are to be settled. Questions remain, however, about the permissible scope and content of settlement agreements.
Dispute arose after settlement agreement was signed
Mr Bathgate was employed for many years as a Chief Officer on board various ships. He took voluntary redundancy on 31 January 2017. Under a settlement agreement, his employer agreed to make various enhanced redundancy and other payments in return for Mr Bathgate settling all claims.
One of the agreed payments was to be calculated by reference to a collective agreement between the National Maritime Agency and Nautilus Trade Union. That collective agreement explicitly said that it only applied to officers under the age of 61. Mr Bathgate had reached the age of 61 but was nonetheless under the impression that he would receive the payment.
Over a month after Mr Bathgate’s redundancy, the employer decided that it was not going to make any payment under the collective agreement, because there was no need to do so for officers aged 61 or above. It is not entirely clear if this was a change of mind on the employer’s part, but the upshot was that Mr Bathgate did not receive one of the payments he was expecting under the settlement agreement.
EAT decides that future claims that have not arisen can’t be settled, making broader comments on settlement agreements
Mr Bathgate claimed that the decision not to make the payment amounted to age discrimination. The Employment Tribunal decided that he couldn’t proceed with his claim because he had waived any age discrimination claims under the settlement agreement. Mr Bathgate appealed. The Employment Appeal Tribunal disagreed with the Employment Tribunal Decision. Mr Bathgate signed away his right to sue for age discrimination before he knew whether he had a claim or not. In the EAT’s view, settlement agreements could not settle such future claims that had not arisen at the date of the agreement.
The EAT then gave its opinion on the practice of trying to settle long lists of claims using settlement agreements. These comments were not strictly related to the facts it was considering and so not a binding precedent on future tribunals. Amongst other things, the EAT said that references in earlier caselaw to “potential” claims being capable of settlement meant claims known to the parties but not brought to the Tribunal. The Hansard record showed that the intention behind the legislation was to allow settlement of “a particular complaint that has already arisen between the parties to that complaint”. In the EAT’s view, settlement agreements should not simply list “a variety of possible claims by reference to their nature or section number” because this was essentially a general waiver drafted with greater particularity. However, these broader comments should be interpreted in their proper context. If an employee has a long list of complaints then there is nothing inherently wrong with seeking to settle them via a long list itemising the related claims (whether by name or section number). The EAT’s point is directed more at the practice of seeking to waive every imaginable claim, whether relevant or not.
What does this decision mean for settlement agreements?
It has always been doubtful that settlement agreements could waive claims about future events which have not arisen. The EAT’s ruling on this point is not particularly surprising. If it was easy to sign away claims that may or may not arise in the future then employees could just be asked to sign settlement agreements at the outset of employment. In an earlier case, a different EAT judge said she thought future claims could be settled under a settlement agreement if the wording was sufficiently clear, but this was never fully tested and the EAT in Mr Bathgate’s case has now poured cold water on the idea.
Despite the EAT’s comments in this case, we think the practice of listing potential complaints (rather than just complaints that have been asserted) will continue. The Court of Appeal has already pointed out that it is not good practice for settlement agreements to list every form of employment right known to the law. This case will likely lead to a renewed focus on omitting claims which are no more than remote possibilities. But sometimes it is appropriate to list claims that have not been actively discussed. For example, an employer might make someone redundant and agree to pay a substantial enhanced redundancy payment. If the employee has a disability or is pregnant or on maternity leave the employer is likely to want to settle possible claims for sex or disability discrimination even though neither sex nor disability had any bearing on the redundancy. If the employer thought that the employee might be neuroatypical (e.g. had ADHD or ASD), the employer might want to settle claims relating to the condition even though the employee had never mentioned it. In those circumstances identifying the concern is likely to exacerbate relations and may be seen as offensive.
Practical options for cleaner breaks
It’s unclear why the settlement agreement in this case left one of the payments to be worked out later down the line under an apparently contentious policy, leaving scope for future disputes. From a practical perspective, it’s clearly better to reduce the scope for future arguments. On the facts of this case, this would have meant bringing forward the decision over what, if any, payment was due under the collective agreement.
In cases where is a delay between signature of the settlement agreement and the employee’s termination date then there is inevitably scope for future claims. In those circumstances it may be preferable (although more costly) to ask the employee to sign a second confirmatory settlement agreement at the termination date and before payments are made.
Other options for dealing with claims that are possible, but not obvious, include repayment clauses or deferred payments, which can work on a practical level to deter claims.
Given the need to identify particular claims, it is impossible to guarantee that any settlement agreement will “work” legally to achieve a full and final settlement of absolutely all claims. This contrasts with the position for settlements reached through Acas and recorded on form COT3. Acas-conciliated settlements are not subject to the same restrictions about particular complaints or proceedings and can be used to achieve full and final settlement of all claims over which Acas has the power to conciliate. It is not possible to involve Acas in every dispute but, where they are already involved, it is worth bearing in mind this potential advantage of the COT3 option.
Bathgate v Technip UK Ltd and others – judgment available here