Settlement agreements cannot settle unknown future statutory claims
In the case of Bathgate v Technip UK, the Employment Appeal Tribunal has held that a settlement agreement cannot settle future claims under the Equality Act 2010 (EqA 2010) that are unknown to the parties at the time of entering the agreement.
The case
In this case, when the Claimant, Mr Bathgate, was 61, he was offered a settlement by way of voluntary redundancy. The terms of the voluntary redundancy package were set out in a settlement agreement that provided for an enhanced redundancy payment, notice pay, and an additional payment for redundancy that would be calculated in accordance with the terms of a collective agreement to be entered into at a later date. As many do, the settlement agreement included a term that sought to waive the Claimant’s right to bring any claims for age discrimination under the EqA 2010 as well as a general waiver for any claims that he had or may have against Technip UK.
After Mr Bathgate entered into the settlement agreement and his employment terminated, his employer discovered that the terms of the collective agreement were such that only those under the age of 61 would be entitled to receive the additional payment and decided not to make the payment to Mr Bathgate after all on account of his age.
Mr Bathgate brought an age discrimination claim, asserting that the decision not to pay him this additional sum constituted unlawful age discrimination. Technip UK argued, and the Employment Tribunal agreed, that the settlement agreement constituted full and final settlement of all current and, importantly, future age discrimination claims that he may have against his employer, and so his claim was precluded by the terms of the settlement agreement and was found to have been waived.
However, Mr Bathgate successfully appealed to the Employment Appeal Tribunal on the basis that s.147 of the EqA 2010 does not permit settlement of claims before they have arisen. S.147 states that certain requirements are to be met before a claim can be settled, including that the waiver in a settlement agreement must relate to a “particular complaint.”
The Employment Appeal Tribunal agreed with Mr Bathgate that for a discrimination claim under the EqA 2010 to be effectively settled pursuant to a settlement agreement, it must relate to a “particular complaint” and therefore must be in existence or be discernible from known facts or circumstances in existence at the time of entering the settlement agreement.
As the Claimant’s age discrimination claim had not arisen at the time of entering the agreement, it was not a particular complaint and was not known to the parties and so the agreement could not waive his right to bring such a claim in the Employment Tribunal.
Since similar wording to that found in s.147 EqA 2010 is also to be found in other statutes, such as the Employment Rights Act 1996, which governs how an employee can legitimately waive their statutory right to complain about an unfair dismissal, amongst others, this case raises an important point of principle with a wider application than just the settlement of discrimination claims.
What does this mean for you or your business?
If you use settlement agreements within your business, as many of our clients do, to secure a clean break with an employee whom you wish to exit quickly from your organisation, this case is a salutary reminder of the limitations of such agreements. For even if the settlement agreement is written in the clearest of terms that it is, and is intended to be, an all-encompassing waiver of the employee’s right to bring any claim of any type that relates directly or indirectly to their employment and/or its termination, chances are the settlement agreement will only be an effective waiver of those claims that are in existence or reasonably discernible from the facts as they were known to the employee at the time it was entered into. Any future statutory claims, which are not known about at the time of the agreement, cannot be waived via a settlement agreement, and therefore there remains the possibility that an employee could, quite legitimately, take the money on offer under a settlement agreement and still, sometime later, pursue a claim against the organisation, which you would either have to defend or enter into a fresh settlement agreement to settle.
Whilst there are compelling commercial reasons for an employer to preclude an individual from bringing a wide range of claims, despite being irrelevant to their employment or its termination, it would now appear fairly well settled that simply including a long list of statutes covering all of the potential claims that the individual could bring, however unlikely, will be insufficient to compromise those types of claims if they have not arisen or are not in existence at the date the agreement is entered into.
This reduction in the certainty and, therefore, the effectiveness of settlement agreements to achieve a clean break is an important consideration for all employers. While we do not believe it will lead to a material reduction in the number of settlement agreements being entered into, it should be a consideration that is factored into the price that an employer is willing to pay for any settlement agreement moving forward.
If you are wanting to achieve a clean break with an employee, this case reminds us that a settlement agreement is not a guaranteed route to achieve that outcome. The only way to achieve a clean break and truly protect your business against all future claims is to opt instead for a COT3 agreement, via ACAS. Under a COT3, it is possible to waive a broader type of employment complaint than simply just known complaints, but you will need to engage ACAS and get one of their conciliators onboard at an early stage, which can be easier said than done given their already stretched resources.
If you are contemplating entering into a settlement agreement or would like to explore the possibility of engaging ACAS to sign off an exit arrangement via a COT3 agreement and would like some guidance, please get in touch with a member of our team at info@torquelaw.co.uk or on 01904 437680.