Introduction to settlement agreements
Settlement agreements between an employer and employee are intended to act as a clean break in the employment relationship whereby the employee waives almost all claims he/she has or could have against the employer, normally in return for an ex-gratia payment (as compensation for loss of employment).
In order for a settlement agreement to be binding, it must be a “qualifying” settlement agreement as defined by section 147 Equality Act 2010 (“EA 2010”) and must identify an actual or potential claim by generic description or by reference to the statute that gives rise to the claim – blanket settlement agreements are unlawful. Historically, case law had indicated that parties could agree to settle future claims, even those not in the contemplation of the parties at the time of entering into the settlement agreement, however, the recent case of Bathgate v Technip UK Ltd has deviated from this practice.
Bathgate v Technip UK Ltd: the facts
Mr Bathgate accepted voluntary redundancy in January 2017 from Technip UK Ltd (“Technip”) which was formalised under the terms of a settlement agreement with advice from a solicitor. Within the settlement agreement there was a specific waiver which set out claims, including age discrimination under section 120 EA 2010 and also a general waiver that included all future claims. In return for entering into the settlement agreement, Mr Bathgate was to receive an enhanced redundancy payment from Technip as well as an additional payment which he would receive in June 2017 (“Additional Payment”). The Additional Payment was to be calculated by reference to a collective agreement which stated that it would only be for people under the age of 61. At the time of his dismissal Mr Bathgate was 61, but he was under the impression that he would be due to receive this Additional Payment. In March 2017, Technip decided that, pursuant to the terms of the collective agreement, it need not pay the Additional Payment to anyone who was 61 or over at the time of their dismissal. This was only communicated to Mr Bathgate in June 2017, when the payment was due.
Mr Bathgate brought a claim of age discrimination against Technip. Whilst Technip acknowledged that he did not receive the Additional Payment because of his age, they argued that he had waived his right to pursue a claim under the settlement agreement.
The Employment Tribunal found that Mr Bathgate had lawfully settled his claim under the settlement agreement, in Technip’s favour.
What did the EAT find?
Mr Bathgate appealed the Employment Tribunal’s decision on the grounds that in order for it to be a binding settlement agreement (under section 147 EA 2010) it has to relate to the “particular complaint” and that it should therefore be limited to settlement of claims that are known to the parties. The EAT allowed the appeal and found in favour of Mr Bathgate. Lord Summers for the EAT stated that:
“The words “the particular complaint” suggest that Parliament anticipated the existence of an actual complaint or circumstances where the grounds for a complaint existed. I do not consider that the words “the particular complaint” are apt to describe a potential future complaint.”
The EAT therefore found that as the future age discrimination claim was unknown to the parties at the time of entering into the settlement agreement, it was incapable of being compromised by the agreement.
What does this mean?
This case has created further legal uncertainty in an area which already was not black and white. It has deviated from previous practice dictated by existing case law which indicated that you could settle unknown future claims (apart from future personal injury claims which are exempt from being settled pursuant to the Unfair Contract Terms Act 1977).
The EAT in this case did, however, note that the statutory requirement for a qualifying settlement agreement to relate to "the particular complaint" requires an actual complaint to exist or circumstances where the grounds for a complaint exist. This suggests that the mere existence of a ground for a complaint at the time of entering into a settlement agreement may be enough to establish that the waiver was entered into.
Given the conflicting case law in this area (and without appellate authority) the drafting of settlement agreements may not significantly change, although employers and their advisors should be aware of the potential risks involved in seeking to settle future claims.
Independent Legal Advice
In order for a settlement agreement to be legally binding and enforceable, an employee will need to obtain independent legal advice as to the terms and effect of the agreement. Normally, the employer will make a contribution towards the employee’s legal fees for obtaining this advice. The Employment Team at Burlingtons regularly drafts settlement agreements on behalf of employers, and also advises employees on the terms of their settlement agreement. If either of these are services you require, please get in touch with us and we would be happy to help.
This article is provided by Burlingtons for general information only. It is not intended to be and cannot be relied upon as legal advice or otherwise. If you would like to discuss any of the matters covered in this article, please contact Richard Berry or write to us using the contact form below.