Can parties validly agree to settle future employment claims via settlement agreements?

A settlement agreement is a specific type of contract regulated by law, between an employer and employee (or ex-employee) under which the employee receives a financial settlement in exchange for agreeing that they won't bring any claims against their employer and will discontinue any they have started. To validly waive most employment claims, the settlement agreement has to be in writing, relate to a ‘particular complaint’ (or complaints) and comply with other legal requirements. 

In Bathgate v Technip UK Ltd, the Scottish Court of Session had to determine if an employer could rely on a clause in a settlement agreement, which purported to prevent the employee from being able to bring any future claims.  

Facts

Mr Bathgate was made redundant and entered into a settlement agreement with his employer. In addition to receiving compensation in respect of the redundancy, the agreement stated that an additional payment would be made, at a date in the future, subject the rules of a specific scheme. Both parties appear to have believed that Mr Bathgate would receive this, but in the end, he didn't because the scheme was only available to employees aged 60 and under. Mr Bathgate was 61. He said that the scheme discriminated against him because of his age and issued a claim in the tribunal.

Before the tribunal could consider the merits of his claim, it had to decide if he was able to bring it, given that under the terms of his settlement agreement, he had agreed not to bring age discrimination claims (as well as a long list of other claims). The specific wording of the clause said that he would not bring claims that ‘he became aware of after the date of the agreement … as a result of new legislation or the development of common law’ as well as a blanket waiver which covered ‘all claims … of whatever nature (whether past, present or future)’. 

The tribunal decided that Mr Bathgate could not bring his claim because it had been waived under the terms of the settlement agreement. The EAT disagreed. It held that future unknown complaints could not easily be considered ‘particular complaints’ because they had not occurred at the time the parties entered into the settlement agreement. This opened the door for Mr Bathgate to continue with his substantive claim and the company appealed. 

Decision

The case went to the Scottish Court of Session. It held that the protections built into the rules on settlement agreements (in this case s147 Equality Act 2010), do not exclude settling future claims provided the agreement:

• clearly identifies the claims being waived 
• the objective meaning of the words used encompass the relevant claim the employee wishes to bring and
• meets all of the other procedural requirements 

The court went on to say that the correct position was set out by the EAT in Hilton UK Hotels Ltd v McNaughton [2005]. That is, a future claim of which an employee does not and could not know about may be covered by a waiver where it is plain and unequivocal that this was what the parties intended.

It therefore decided that Mr Bathgate could not proceed with his claim because it had been validly settled under the terms of his settlement agreement.

Although this decision is not, technically, binding on tribunals in England and Wales it is very persuasive, and we expect tribunals in these jurisdictions to follow it. That's because the law in relation to settlement agreements in Scotland is practically indistinguishable to that in England and Wales. 

Tips to consider when drafting a settlement agreement

Most settlement agreements distinguish between common law/contractual claims (such as non-payment of notice pay) and statutory claims (such as unfair dismissal and unlawful discrimination). It's possible to waive common law and contractual claims (including future claims) by including clear, unambiguous language in an agreement. By contrast, statutory claims can only be waived if the parties comply with the detailed list of requirements set out in legislation regulating settlement agreements, or via Acas conciliation. 

Previous cases have made it clear that it is very difficult to validly waive statutory claims about future events which have not arisen at the time the parties sign the settlement agreement. This decision suggests that it may be easier to rely on waiver clauses for these types of claims, provided the agreement is carefully drafted. 

To stand the best chance of settling future claims via a settlement agreement, we recommend that you: 

1.Tailor waiver clauses

• Set out each claim you intend to include either by a generic description such as ‘unfair dismissal’ or by reference to the section of the statute giving rise to the claim. Do not use a rolled-up expression such as ‘all statutory rights'.
• Use precise language. For example, in Palihakkara v BT Plc, the EAT held that a settlement agreement which purported to settle ‘all claims past or future arising out of P’s termination of employment' did not cover the race and sex discrimination claims that arose during the course of her employment.
• Although you may think that it's safer to include every possible claim that any employee could bring, only include claims which are, or could be, relevant to the specific employee. For example, if you are dealing with a biological man, you can safely delete any claim in respect of pregnancy or maternity discrimination.

2. Don't use generic agreements 

If you have a standard precedent, you should tailor it to reflect the circumstances of the individual case you are dealing with and, ideally also include some information about the background which led to the settlement agreement. 

Be very careful if you purchase an agreement via the internet. If it doesn't comply with all of the safeguards set out in legislation, it will be unenforceable, and you may find that your employee brings existing claims against you that you thought you'd already settled.  

3. Deter employees from bringing additional claims

You could also attempt to deter employees from bringing new claims by including repayment clauses and/or defer paying all of the compensation in one go. Bear in mind that, if challenged, a tribunal or court may (depending on how it is drafted and how much is to be repaid) decide that a such a clause amounts to a penalty and is unenforceable. 

4. Sign a second confirmatory agreement

In circumstances where there is a delay between the parties entering into a settlement agreement and the termination of their employment, you can include provision in the agreement for the employee to confirm that the terms of the original agreement are still valid and there are no other claims they could bring. This is usually achieved by a ‘reaffirmation letter’ which also has to be signed by a lawyer, or other qualified person.   

5. Use a COT3

None of these options are bulletproof. If you want to be as certain as you can be that your ex-employee will not come back for a second bite of the cherry after you've agreed terms and paid them compensation, ask Acas to conciliate and record the agreed terms on a COT3. Acas conciliated settlements are not subject to the same restrictions as those regulating settlement agreements and can be used to achieve full and final settlement of all claims over which Acas has the power to conciliate. You will still need to ensure that the COT3 includes careful and precise wording which makes it clear that it includes future claims arising on termination or during the employee's employment. We can help with this. 

6. Take advice

Preparing a legally water-tight settlement agreement involves a complex mix of law and strategy and it's sensible to use an experienced solicitor to help you draw up appropriate terms. Please contact national head of our employment team, Elaine Huttley for advice. 

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