Can you compromise future claims under a settlement agreement?

Resolving employee disputes with a Settlement Agreement

This was the question that the Employment Appeal Tribunal was asked to decide in the case of Bathgate v Technip & Others where Mr Bathgate sought to pursue a claim of age discrimination against his former employer, despite having entered into an agreement with them where he agreed to settle all present and future claims.  

The law

A Settlement Agreement is a contract between an employer and an employee within which the employer offers a sum of money or other form of compensation, in return for the employee agreeing not to pursue their employment rights in the Employment Tribunal or Civil Courts. 

Settlement Agreements are regulated by statute and have to fulfil certain statutory conditions in order for a claim to be validly settled.  

1. These conditions are that the contract is in writing;

2. the contract relates to the particular complaint or proceedings; and

3. the complainant has, before entering into the contract, received advice from an independent adviser about its terms and effect (including, in particular, its effect on the complainant’s ability to pursue the complaint before an employment tribunal)

(s203 Employment Rights Act 1996 and s147 of the Equality Act 2010)

The second condition – which requires the settlement agreement to relate a particular complaint or proceedings –   has long been a source of debate.   This is because it is not clear from the wording of the statute whether a settlement agreement can validly settle future complaints (i.e. those that have not yet arisen) or whether it can only lawfully settle claims that are already in existence. 

This “grey area” has led to some creative drafting by legal brains over the years to try and protect employers – culminating in the present-day standard form of settlement agreement, with which many employers will be familiar.  

In such a settlement agreement, the employee is required to confirm that they have received advice on, and agree to settle, a huge list of “particular complaints” against their employer (the majority of which the employee does not have and/or has never heard of) thereby satisfying – in theory – the condition that the settlement agreement relates to the “particular complaints”.   This, coupled with an agreement that the employee will pay back any compensation to the employer if they do pursue a claim, has proven to be a remarkably effective deterrent over the years.   However, it was only ever a matter of time before this “creative” construct was going to be challenged…..

The facts

Mr Bathgate was employed for over 20 years by Technip, latterly as a Chief Officer, until he was put at risk of redundancy.  He was 61 at the time.   He was offered an enhanced redundancy package, which he accepted.   The terms of the redundancy package were that he was required to enter into an agreement, settling all claims against his employer. He was required to take legal advice on the settlement agreement, which he did, and his employment terminated on 31 January 2017.  

In accordance with the terms of the agreement, he received his notice pay and an enhanced redundancy payment following termination.  The agreement also said he would receive an additional pension payment in June 2017, pursuant to the terms of a collective agreement.   However, the terms of this collective agreement stated that the additional payment was payable to all officers who had not reached the age of 61.   Nonetheless, Mr Bathgate anticipated that he would receive this additional payment. 

A month after the settlement agreement was completed, Mr Bathgate’s employer decided that the additional payment didn’t need to be paid to employees who were 61 or over at the time of dismissal, which included Mr Bathgate.  Mr Bathgate, however, was not told he would not be getting this payment until June 2017.   

After being told this, Mr Bathgate brought claims against his former employer, Technip, claiming that the decision not to make the additional payment amounted to direct and/or indirect age discrimination.  Technip defended the claim, arguing (among other grounds) that, by signing the settlement agreement, Mr Bathgate had compromised his right to pursue any further claim against them. 

The initial decision

The case went before an Employment Tribunal, where it was concluded that Mr Bathgate had settled any claim he might have for age discrimination by entering into an agreement with his former employer whereby he agreed to accept the enhanced redundancy package in return for, among other things, waiving his employment rights.   The Employment Tribunal held that, on ordinary contractual principles, he had lawfully settled his claim.   

Mr Bathgate appealed on the grounds that s. 147 of the Equality Act 2010 did not permit settlement of claims before they had arisen and that on a sound construction of the words “the particular complaint” the Equality Act 2010 limited settlement to claims that were known to the parties at the time of the settlement.    He argued that, as he could not have known about his age discrimination claim at the time he entered into the settlement agreement, this claim was not compromised. 

The appeal decision

The Employment Appeal Tribunal found in favour of Mr Bathgate and concluded that the agreement he signed did not effectively settle his claim for age discrimination.  

The Employment Appeal Tribunal considered the fact that the settlement agreement stated that Mr Bathgate accepted the terms of the agreement in “full and final settlement” of a list of claims which he “asserted” against his employer, and that this list included a claim of age discrimination.  

The Agreement also included a general waiver which said that, as well as settling the claims in the list, Mr Bathgate settled “…. all claims, demands, costs and expenses of whatever nature (whether past, present or future and whether under contract, statute, regulation, pursuant to European Union Law or otherwise) which the employee has or may have against the Company, its directors and employees”.

The Employment Appeal Tribunal also noted that Mr Bathgate had the benefit of legal advice on the agreement and that a certificate was supplied from his solicitors stating this.  

However, regardless of this clear wording, the Employment Appeal Tribunal held that the requirement that a qualifying settlement agreement must relate to “the particular complaint”, required the existence of an actual complaint or circumstances where the grounds for a complaint existed.   The words “the particular complaint” could not be interpreted to include a potential future complaint and that was not what Parliament intended at the time the law was passed.  

As Mr Bathgate’s claim for age discrimination arose after his employment ended, it was not a complaint that existed at the time of termination and therefore he did not lawfully settle this complaint under the agreement. 

The Appeal Judge stated that there was no difference “between a “rolled up” waiver and a waiver which listed a variety of possible claims by reference to their nature or section number.  Both are general waivers.”  The Judge went on to say that neither approach would be effective to settle future claims and describing unknown or future claims as the “particular complaint” was futile.

Action to take

The decision in this case makes it clear that a settlement agreement cannot lawfully compromise unknown future claims.    A settlement agreement can only validly settle claims that are already in contemplation, or which could arise out of circumstances that exist at the time the agreement is entered into.  

This makes it vitally important to tailor settlement agreements according to each individual case.   It is too tempting sometimes to use a template settlement agreement and simply change the name and job title of the employee and the terms of the offer.    As this case demonstrates, in order to for the settlement agreement to effectively compromise a claim or claims, you have to specifically identify in the agreement what actual or potential claims have arisen or describe what the circumstances are, which could give rise to potential claims.  A general waiver will not suffice. 

Of course, it is a very rare occurrence where an employee challenges the validity of a settlement agreement.   In the overwhelming majority of cases, the parties will enter into the agreement with the clear intention of avoiding any future disputes and to achieve a clean break. 

It is also worth highlighting that, even though it is not possible to prevent an employee from bringing unknown future claims, a well drafted settlement agreement will always provide some measure of protection to the employer in the form of warranties and indemnities and these will normally be more than sufficient to deter any employee from “taking a second bite at the cherry” and pursuing new claims.