Out-Law / Your Daily Need-To-Know

Out-Law News

Settlement agreements cannot waive unknown future claims

Anne Sammon tells HRNews about the EAT’s decision in Bathgate v Technip UK Ltd and its impact on settlement agreements

We're sorry, this video is not available in your location.

  • Transcript

    Unknown future claims of discrimination cannot be waived in a settlement agreement. The Employment Appeal Tribunal in Scotland has ruled that such agreements can only protect an employer from claims which have been made, or raised, by the employee at the date of the agreement, not future claims that have not yet arisen. So, what does it mean for the long-standing practice of listing all possible claims that could be brought? We’ll consider that.

    Personnel Today reports on this and gives the facts of the case. The claimant, Charles Bathgate, had been employed by ship operator Technip for almost 20 years before he was made redundant. He was 61 at the time. He was sent a settlement agreement that laid out the redundancy terms and he accepted them. They included an enhanced redundancy payment and an additional sum which would be paid in June 2017. Prior to that, in March 2017, the company decided that the additional sum would not be paid to those aged 61 and over but, crucially, that wasn’t communicated to Bathgate until June 2017. Bathgate said failing to make that payment amounted to age discrimination and he brought a tribunal claim on that basis. In its defence the company argued that by signing the agreement Bathgate had compromised his right to pursue any further claim.

    Bathgate’s ultimately failed at tribunal for reasons to do with jurisdiction as he was working overseas at the time. However, on the issue of whether his age discrimination claim had been settled, the EAT ruled in his favour. So, although he had signed a settlement agreement referring to age discrimination it was signed before he knew of the existence of a claim.

    This case raises important questions about the long-standing practice of drafting settlement agreements in wide terms to catch all possible future claims. To be valid the settlement agreement must identify the particular claim being waived. There are thought to be 97 separate statutory claims which could in theory be brought before an employment tribunal which explains why settlement agreements often contain a long list of potential causes of action regardless of whether they relate to the case in question or not - the so-called ‘blanket approach’. It can look strange. For example, listing potential maternity claims for men, and minimum wage claims for CEOs, but the thinking is ‘belt and braces’, list everything, block all possible claims that could arise.

    That approach has now been rejected by the EAT. In his judgment Lord Summers says the requirement in section 147 [Equality Act 2010] that a qualifying settlement agreement ‘relates to the particular complaint’ cannot be met if a cause of action has not emerged at the time of the agreement. In other words, general waivers will not work. So where does that leave that practice of drafting a long list of potential claims in the settlement agreement? Does this case change that practice? It’s a question I put to Anne Sammon:

    Anne Sammon: “I think potentially it might change the practice, Joe. I think it depends on what your current approach to drafting settlement agreements is. So as a matter of practice, we tend to say to clients that you should tailor those long lists of waivers so that they are the ones that apply to the particular circumstances. So, to take a really obvious example - including a waiver that someone won't bring a pregnancy discrimination claim when they're a man is not really tailoring to the particular circumstances. So, we've always advised clients that they should tailor to an appropriate degree and I think doing that is a very good protective measure. What we are yet to see is whether the tribunals will start to kind of move away from the historic practice of being able to just list by reference to the legislation. So, we will quite often just see legislative references in a settlement agreement rather than a full narrative around what it is exactly that's happened that means that the individual is waiving a claim.”

    Joe Glavina: “Can I ask you about a couple of ways to minimise the risk of future claims. First is the warranty – so the employee gives a warranty that he, or she, has identified to the employer all claims they believe they may have. Secondly, minimising the time between the signing of settlement agreement and the termination date to reduce the risk of claims arising after the agreement is signed but before termination.”

    Anne Sammon: “I think the warranty is a reasonable way of going about it. I think with a lot of these things it’s all about balancing the risk. So, part of your approach to a settlement agreement is going to depend on whether this is a settlement agreement where somebody is walking away with a thousand pounds or, to take an extreme example, a million pounds. In the latter example you're going to want to make sure that you have covered off every single possible risk whereas if it's a lower value claim you're going to be less concerned. I think that the danger of the ‘we warrant that we have included everything’ approach is what happens if you, as the employer, think, oh, but actually this person might have a different claim that they've not listed out. So, if we are the employer and we know that something's happened in the background, the employee may very legitimately say, well, I never considered that that was part of what I might bring a claim about and it's only later down the line that I've discovered that. There are advantages to doing it but they do need to be kind of controlled against the other provisions that you include in the agreements. I think the downside to delaying payment these days is that with Acas early conciliation coming in, that makes a much longer delay than we used to have. So, historically, I used to have clients all the time who would say we won't make the payment, or make part of the payment, until three months and a day after the termination, for example, feeling comfortable that that was the deadline for the Tribunal claim. With Acas early conciliation it makes it a lot more difficult to calculate with certainty when that point is and, therefore, you can easily see that the delay might suddenly become six months and that becomes unattractive on a commercial basis for both the employee and, potentially, the employer because there's that risk then of things getting lost, people forgetting to press the payment.”

    Joe Glavina: “Another approach that’s used is the reaffirmation letter. So, if there’s a gap between signing the settlement agreement and termination the employee termination date, getting the employee to reaffirm no claims have arisen in that period. Will that work?”

    Anne Sammon: “So, that should work, so long as it's done appropriately. So, again, this depends on the gap between signing and termination date. Quite often, we might see a gap of a day or so in which case you probably don't need to go through the process of reaffirmation, but the advantage of reaffirmation is if you know that an employee is going to exit at some point in the future, and you want the certainty of what those terms will be, you can negotiate the settlement agreement and then do the reaffirmation at termination and that way you know that that gap between signing and termination, if anything has arisen, the employee is waiving their claims in relation to that. That’s all about the fact that there's always been concern that you can't waive claims that have happened in the future, so if you had an employee who signed a settlement agreement that said they waived all discrimination claims and between the date of the settlement agreement and then actually exiting the organisation an act of discrimination occurred, it's unlikely that that waiver would have been sufficient to resolve that claim. So, the advantage of the reaffirmation is that you know that everything during the employment period has been covered off. We quite often see clients who are a little reluctant to go down the reaffirmation route just because there's an increased cost because the employee has to get two sets of legal advice, but I think this case highlights the fact that actually, given the uncertainty around the ability to waive future claims, that becomes really key.”

    Joe Glavina: “Finally, can I ask you about using a COT3 as an alternative approach. So, as we all know, settlements reached through Acas and recorded on a COT3 form are not subject to the same restrictions we’ve been talking about is that a better way to go? Safer?”

    Anne Sammon: “Potentially in theory. I think the challenge is that in practice we quite often see Acas conciliators who will only allow waiver of the claims that are actually in front of them. So, because by the point of which you're involving Acas you tend to have a more concrete dispute - so the employee is alleging that they've been discriminated against or that they're a whistleblower - what we tend to see is that the Acas conciliator will allow you to waive only those claims and if you start trying to include the kind of ‘belt and braces’ waiver of everything else they will, effectively, refuse to include it and then it's not a COT3 unless Acas have signed off on it.”

    The case at the centre of this is called Bathgate v Technip UK Ltd and is a decision of the Employment Appeal Tribunal. We have out a link to the judgment in the transcript of this programme.


    - Link to judgment: Bathgate v Technip UK Ltd

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.