Future claims can be settled by a settlement agreement


6th February 2024

A recent ruling by the Court of Session in Scotland has held that unknown future claims can be settled by a settlement agreement, so long as the agreement clearly identifies the types of claims being settled and that the objective meaning of the words used, encompasses settlement of the relevant claims. We consider the ruling in Bathgate v Technip Singapore PTE Ltd and what it means for employers.

What is a settlement agreement?

Previously known as a compromise agreement, a settlement agreement is mainly entered into by an employee and employer at the end of the employment relationship. It involves the employee waiving their rights to bring certain claims against the employer usually in return for some form of “consideration” (normally monetary compensation) and ensures the parties’ positions are clearly stated on termination. There are a number of conditions which have to be satisfied in order for the settlement agreement to be valid. For example, it must be in writing, it must state each “particular complaint” being settled and the employee must have received independent advice about the implications of signing it.

Background

Mr Bathgate was employed for almost 20 years by Technip Singapore PTE Ltd (“the company”). On 29 January 2017, Mr Bathgate accepted redundancy terms and signed a settlement agreement. This consisted of an enhanced redundancy package, with provisions for an “additional payment” to be paid in June 2017. This additional payment was to be calculated by reference to a collective agreement between the National Maritime Agency and Nautilus Trade Union, which stated that the additional payment would only be made to those who had not yet reached the age of 61. Mr Bathgate was 61 at the time of being made redundant, and it was not communicated to him until 26 June 2017 that he would not be able to receive the additional payment.

Mr Bathgate brought an Employment Tribunal (“ET”) claim on the basis that the failure to make the additional payment amounted to post-employment age discrimination. The company argued that Mr Bathgate had compromised his right to pursue any such claim on entering into the settlement agreement, which listed various claims that were to be settled, including direct or indirect age discrimination along with a general waiver of “all claims…of whatever nature (whether past, present or future)”. Mr Bathgate argued that the Equality Act 2010 does not allow for claims to be settled before they have even arisen.

Employment Tribunal and Employment Appeal Tribunal

The ET found that the age discrimination claim had been settled by the settlement agreement, despite the alleged age discrimination only occurring after the settlement agreement had been entered into. Accordingly, the waiver could cover claims whether or not in the contemplation of the parties at the time the agreement was entered into. The settlement related to the “particular complaint” in issue and, even though it was a potential future claim when the agreement was signed, it was identified in plain and unequivocal terms.

On appeal, the Employment Appeal Tribunal (“EAT”) disagreed with the ET, referring to:

  • Section 147 of the Equality Act 2010, which requires that settlement agreements must relate to a “particular complaint”; and
  • Section 203(3) of the Employment Rights Act 1996, which requires that any particular claims the employee might have against their employer must be identified within the settlement agreement.

As the act giving rise to the age discrimination claim had not yet happened at the time the settlement agreement was entered into, the EAT concluded that the settlement agreement was unenforceable as, in its view, unknown future claims could not be waived.

Court of Session

The case then went to the Court of Session (Scotland’s equivalent to the Court of Appeal in England and Wales), which disagreed with the EAT’s decision. The claims waived in the settlement agreement included those based on age discrimination even if they could not be known of at the time of the agreement. The Court of Session held that a “future claim of which an employee does not and could not have knowledge” could be settled by a settlement agreement if “it is plain and unequivocal that this was intended” and the types of claim are clearly identified.

Comment

Whilst Bathgate is a Scottish case, and therefore not binding on Employment Tribunals in England and Wales, the law regarding settlement agreements is almost identical in Scotland and this decision is therefore likely to be highly persuasive in deciding any future similar cases. The decision of the Court of Session confirms that settlement agreements can be used to waive future claims, so long as these potential claims are clearly identified in the agreement by reference to a generic description or the section of the relevant statue. Whilst the agreement must relate to each “particular complaint” in issue to be valid, this complaint does not have to be in existence or have been known of at the time the agreement is entered into. While employers will welcome this decision, they (and their advisers) should ensure that settlement agreements are well drafted and include specific references to each claim being waived. This will require careful thought as to what potential claims might arise and the use of precise wording to ensure such claims are clearly identified. Employers should not rely on a general waiver of all claims as that kind of blanket approach will almost certainly make the settlement agreement ineffective.

If you would like assistance with drafting your settlement agreements, please get in touch with our Employment team.

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